Whizzer, that is the compelling argument
that keeps me heavily invested in IDCC. To look at a really conservative estimate, we'll start at break even, assuming that the decreased litigation costs are replaced by other expense increases. We'll assume IDCC gets 25 cents per device, additional licenses only come to 50% of the total market and sales are 10% less than currently projected.
645MM units x 90% x 50% = 290MM additional units licensed
290MM units x $0.25 per unit x 66% kept after tax = $48MM profit.
This results in over $1 per share of income. At a PE of 20 you have a $20 share price.
I would be very disappointed if the above IDCC scenario turned out to be accurate. However it demonstrates how little is priced in at these levels.
This does not take into account the cash on hand that IDCC has now and will grow when 2G amounts are collected (SAMMY alone should add $4 per share), 3G catch up payments when new licenses are signed, or income from chip sales. Also in times like this cash is king. IDCC may find a very good opportunity for an acquisition of a company that has a great future but has liquidity problems. Or they may start paying a regular dividend which would widen the stock's appeal.
The big risks I see are:
1) Delay in getting the contracts signed. The longer it drags out, the less bang for the buck we get. Recurring earnings get multiples, catch up payments do not. Also there is risk that the companies that owe us will not be able to pay... how strong are Nokia, Samsung, Ericksson, Motorola? How will they be affected by the current financial situation?
2) Having our patents found to be invalid or non-essential. I think combined outcomes of the cases so far have shown IDCC's IP to be valid and required, however it is complex and there is always risk when there is a dispute.
The point of all this is that in my very strong opinion, the risk/reward at these levels is strongly skewed towards the positive. Even with what most here would consider very poor execution by IDCC, the potential share price should easily top $30. If they can get 80 cents a unit ($1 - 20% prepayment discount), that translates into a share price of over $60 still using the other conservative projections. IMO, this is the time to buy IDCC. Markets are volatile so you have to be able to put aside your emotions, but now is the time to act.
I think that there is 50/50 chance IDCC settles with SAM between Veteran's Day and Thanksgiving. If not, I think there is a 1/3 chance ALJ rules in IDCC's favor and recommends an injunction. Either way, the price will jump. Of course, this is IDCC, so I would not be shocked to see us back on the litigation merry-go-round, but I'm hoping that this year is the "next year" we've been waiting for for so long.
AI
