NukeJohn: In regard to the number of LTE/4G essential patents that IDCC has (?) (there can be a significant difference between the number declared and those actually essential), I am glad to see that IDCC doesn't want to play the numbers game (see below from 3rd qtr 2010 CC). I also note that IDCC was pretty coy about commenting on what rates they want for LTE; but it sounds like they are only looking for a slight increase from current 3G rates, whatever they may be.
Michael Cohen - MDC Financial Research
Okay. Organizations like Informa had you ranked number one in LTE patent portfolios. FC [ph] had the rank as number two. Do you think those sorts of reports are accurate?
Scott McQuilkin
No, we don’t endorse any reports because the math that they use is not often disclosed and so we don’t really know how they arrive with their numbers. That said, we have posted on our website our position on LTE. We believe it is very strong and continues to grow based upon a lot of investment in the States. Also, as we have noted before, LTE is a layer of technology on top of 2G and 3G, where we continue to have a strong patent position.
So we are very encouraged by the LTE licensing opportunity. So, I would refer you to the website and you can get a little more information on our LTE division there.
Michael Cohen - MDC Financial Research
Okay and those sorts of reports have, you up there with Qualcomm and Qualcomm asks 3.25% requested rate on LTE? Do you think that your royalty rights might be and were in that range?
Scott McQuilkin
Qualcomm gets to wherever it gets to for a variety of reasons, a lot of it historical. Where we end up at the end of the day is, and I talked about this before, we have a certain level of royalties that we get today on 3G products. Given the very strong position we have on LTE and again that it’s a layer, we believe we can move those rates up. I would suggest it’s not a dramatic move, it will be more that wedged up. But even a small move in rates in this market can be very, very significant in terms of revenue and profits.
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I think IDCC has the most LTE/4G essential patents...but I am basing that on about 6 different organizations that I have read that have done an analyis of LTE essential patents. I have seen IDCC rated between 13% and 24% of the essential patents, and I have seen QCOM rated between 9% and 19% ...with one outlier (Alex Lee from Tech IPM whose numbers seem out of whack with everyone else). I think this issue will be debated for years to come...and I'm sure Data agrees with Tech IPM. My only concern is that IDCC gets a fair LTE rate. I would consider anything below 1.4% unfair. I would be extremely happy with 1.6-1.8% (even if QCOM thinks they deserve 3.25%).
If IDCC gets a 1.5% rate...the NPV of the LTE patents alone would make IDCC's market cap worth 13.5 Billion or about $306/share. I get this from the IDCC recent presentations and CC's where they have repeatedly said that independent analysis shows that for each .1% you get on LTE, it has a net present value of $900 Million. So, once we know what IDCC is getting on LTE/4G, simply multiply it by $900 Million and you know the present value of their LTE portfolio (this does not include all their other network of network IP or M2M IP, etc.). So, you see why I think IDCC is so underpriced right now. But the fact that they haven't had adequate analyst coverage has been to our advantage....allowing us to stock up at prices below $60.
