InterDigital Boosts Licensing Portfolio with Huawei Tie-Up
Zacks Equity Research
,Zacks•April 29, 2020
InterDigital, Inc. IDCC recently announced that it has inked a global non-exclusive patent licensing deal with China tech behemoth — Huawei. This comes as a surprise to many as the two companies have a bitter history of being actively involved in numerous patent license litigations. Apart from putting an end to years of legal disputes, the strategic move is likely to enhance InterDigital’s diversified portfolio of wireless technology and intellectual property amid the current economic downturn. Post the announcement of this news, shares of InterDigital increased 15.1% to close at $57.70 on Apr 28.
It is worth mentioning that patent infringements suits are common in the technology industry. Last year, the Wilmington, DE-based wireless service provider had filed a patent infringement case in the United Kingdom against Huawei, the world's largest provider of telecommunications gear. Reportedly, InterDigital claimed compensation for Huawei’s illegal usage of the former’s 3G, 4G and 5G standards-essential patent licenses. Acknowledged as one of the top innovators and contributors to cellular wireless standards, InterDigital sued Huawei in 2011 on similar grounds of patent breach. Later that year, the China-based company filed a case against the U.S. firm for antitrust investigation.
Despite years of prolonged legal spats, Huawei and InterDigital agreed to drop all pending lawsuits over patent infringement and license fees. Notably, the Trump Administration had added Huawei along with 70 of its affiliates to the Entity List — a list of entities that are ineligible to receive any item without government approval. This mandated U.S. suppliers to apply for licenses to provide components to Huawei. Despite the trade ban, two major American holders of patents for wireless networking technology — Interdigital and Qualcomm Incorporated QCOM — continued its relationship with Huawei. Apparently, both the companies believe that since U.S. export control laws do not cover their patent technologies, they can continue to generate lucrative revenues and develop 5G technology with the China-based company.
Recognized as the world’s third-largest smartphone provider, Huawei is a large customer for both InterDigital and Qualcomm. Per the latest agreement, InterDigital has authorized the China tech behemoth to utilize some of its patents on Huawei products, thereby enhancing the flexibility of the entire licensing program. Notably, InterDigital has permitted Huawei to leverage its patented WiFi and High Efficiency Video Coding technologies on the latter’s 3G, 4G and 5G devices. The licensing agreement will be effective until Dec 31, 2023. Financial terms of the deal have not yet been disclosed.
InterDigital’s commitment toward licensing its broad portfolio of technologies to wireless terminal equipment makers that allows it to expand core market capability, is noteworthy. Currently, it has many leading companies under its licensing agreement and expects to grow its licensing revenue base by adding more firms that have attained market prominence over the past several years. Impressively, it claims more than 32,000 patents in wireless and video technologies and 9,800 patents for 5G cellular data standards.
The company’s global footprint, diversified product portfolio and ability to penetrate in different markets are commendable. Apart from its strong portfolio of wireless technology solutions, the addition of technologies related to sensors, user interface and video to its offerings is likely to drive significant value, considering the massive size of the market it licenses.
InterDigital currently sports a Zacks Rank #1 (Strong Buy). It has long-term earnings growth expectation of 15%. In spite of being committed to its objective of expanding revenue streams while controlling operating expenses, shares of InterDigital have lost 8.4% compared with the industry’s decline of 17.6% in the past year.
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