InterDigital Inc (IDCC)

[The Count]

Nokia and renewels should provide increasing revenues

My hope is that Nokia's contract will run through at least 2013. That way even if IDCC continues to execute fixed fee licenses, they can get increasing earnings by getting bigger contracts when there are renewals. With the market increasing, it makes sense that the renewals will be for more money. My hope is that litigation won't be needed for further 3G licenses as once we've signed it would kill the FRAND defense and set a value. As Nokia showed with QCOM, far from a slam dunk, but a much better chance. By having the tier one on different renewal years this will give IDCC the ability to have consistent growth in earnings along with great visibility and a guaranteed minimum amount from the current fixed fees.

It seems to me that IDCC could reasonably record their fixed fee revenues on a increasing basis instead of straight line. Since the market is increasing, it makes economic sense to allocate the revenues lower in the first year and increasing based on expected sales volume in future years. I do not have experience in this type of revenue recognition, but it does seem like a rational methodology (similar logic to accelerated depreciation), and frankly seems like a more reasonable allocation of the revenue. Locking in earnings growth would be fantastic. If anyone has any input on whether this is allowable under GAAP I'd be very interested.