InterDigital Inc (IDCC)

[techinvester]

Hi Data and Slacker,

I view 4G as a paradigm wireless technology shift which to me makes the Nortel and IDCC 4G acquisitions much more important than simply just another defensive patent acquisition. 4G ushers in usage of a new wireless technology base for the foreseeable future. i.e. Evolution from the 3G Edge/CDMA based standards to the 4G LTE/WIMAX based standards based on OFDMA, MIMO and other technologies. I say for the foreseeable future since a 5G standards effort has not begun by any of the standardization bodies (http://en.wikipedia.org/wiki/5G ). The following paragraph highlights how QCOM capitalized on the wireless technology shift from analog 1G to digital 2G. The benefits of the acquisition of the IDCC patents would benefit any entity that can successfully license and/or cross license the IP.

QCOM based their initial business foundation and success on IS-95. Their initial CDMA product was challenged for patent infringement by IDCC and Ericson which was later resolved through settlements with IDCC in 1994 (http://books.google.com/books?id=weGlKJGlwFEC&pg=PA3&lpg=PA3&dq=is95+patent+royalty&source=bl&ots=4Q6ax57YEB&sig=gkINElZF5-QquoWtHjRWJZZFi30&hl=en#v=onepage&q&f=false ) and Ericson in 1998 (http://www.thefreelibrary.com/Ericsson+Drops+Three+'Essential'+Patents+from+Lawsuit+Against...-a053101283 ). The settlements cleared their path forward and they continued to help develop the mobile technology standards evolution of CDMAone (IS-95), CDMA 2000 1X, and CDMA 1xEV-DO (http://en.wikipedia.org/wiki/CDMA2000 ). UMB (Ultra Mobile Broadband) was the planned 4G successor to CDMA2000 but in November 2008 Qualcomm announced it was ending development of the technology, favoring LTE instead ( http://en.wikipedia.org/wiki/Ultra_Mobile_Broadband ).

Our current discussion of 4G recently has been focused on LTE. Our discussion should also address WIMAX. Fortunately both LTE and WIMAX do not use 3G CDMA spread spectrum radio technology or IS-95. Those technologies are replaced by Orthogonal Frequency-Division Multiple Access (OFDMA) and other frequency-domain equalization schemes that is combined with Multiple In Multiple Out (MIMO) (http://en.wikipedia.org/wiki/4G ). The following article highlights the differences between LTE and WIMAX (http://www.differencebetween.com/difference-between-lte-and-wimax/ ). This last article provides measured performance of existing LTE and WIAX systems operating in the U.S. (http://www.computerworld.com/s/article/9207642/4G_shootout_Verizon_LTE_vs._Sprint_WiMax ).

As to whether QCOM acquires IDCC’s patent portfolio or someone else does, time will tell. I do believe IDCC will receive an offer and I agree with numerous other board members that it will be in excess of $110. For the sake of those that have been in for the long haul I hope we are pleasantly surprised to the upside.

Data, Slacker and others, I have tried to identify why I believe QCOM should be considering a bid for the IDCC patent portfolio based on this post and my previous posts late Friday and early Saturday. I tried to leave the financial analysis to others more experienced than me. I appreciate your feedback relative to my earlier posts. I am assuming in order for you to form your opinions especially relative to ROI you have considered and formulated an estimate/SWAG for the following questions. Would you be willing to share your assumptions relative to the following?

1. Since multiple sources believe IDCC has essential 3G and 4G patents, do you believe QCOM will have to pay IDCC a royalty fee for their product/chip sales? If yes, what average % royalty rate would you estimate QCOM would have to pay IDCC over a 5 year period and what would the total 5 year royalty fee be? If no, why?
2. What royalty rate would you estimate IDCC could achieve for an LTE phone sold by Samsung?
3. What royalty rate would you estimate IDCC could achieve on average for the wireless industry excluding QCOM if they licensed 75% of the industry for the next 5 years based on predicted handset and terminal sells broken down by cellular standard implemented in the devices? Extrapolated based on your forecast of quantity of sales and prices, what 5 year sales total would you estimate?
4. Based on #1 & #3 above reduced by IDCC’s expenses during the same 5 year period, what gross earnings do you believe IDCC could achieve for the 5 year period?
5. Based on #4 above, current IDCC cash on hand, the opportunity for IDCC payment for past due royalties and excluding time value of money, what price do you believe QCOM would be willing to pay to purchase all of IDCC including all assets and personnel? You will need to factor in what rate QCOM could charge for the IDCC patents. I still feel based on the 2008 QCOM disclosure they could charge a fee to existing licensees either with IDCC as a subsidiary or incorporated into their existing business case. We can agree to disagree on this point but if you’re willing I would like to better understand your reluctance to consider QCOM negotiating royalty fees for patents acquired from IDCC. Do you believe if Broadcom, Intel, Samsung or someone else bought IDCC they would not try to negotiate/renegotiate with QCOM based on a possible licensing/cross licensing exchange etc. as appropriate?

Feel free to ROM the above estimates as I know they are SWAGS based on many unknowns. I am just trying to better understand why you believe based on all of these reasons why IDCC would not be desirable to QCOM. I would also appreciate any constructive feedback relative to my posts. FYI - I am an engineer straying into finance relative to the paragraph above.

From a short term pop in IDCC share price perspective whoever is willing to buy IDCC is fine with me as long as the price appreciation is acceptable. Depending on who buys IDCC and price paid, I may be inclined to take some money off the table but let some money ride with the new entity. From my perspective it would appear that OFDMA and MIMO will be the foundation patents for the next decade or so similar to IS-95. I think a combined patent pool of IDCC and QCOM for 4G (#1 & #2) backed by QCOMs IP management and the infusion of IDCC's engineering talent would be a pretty interesting entity to assess. From a regulatory perspective this would still only be ~40% of the wireless patent pool for 4G compared to ~47% for QCOMs 3G patent pool percentage. I will let someone else assess the 3 legged stool.

All - JMHO based on a long night of reading and finalizing thoughts based on the past decade of learning on Jim's boards. Sorry for the long rambling post and have a good day, off to work. FYI - The links I provide are just the sources I use to formulate my opinions. I'm sure Data, Slacker and others know most of this but hopefully it is helpful to some.

OT – Data, glad to be back lurking and posting periodically. I had a health setback for several months. I wanted to thank everyone again for their extreme generosity enabling me to buy the RT300 for PT. I received it in late May and it has been invaluable during my rehabilitation. I am hoping to be fully back in ~1 month to where I was in March.

Ellismd & squingeqbob - I was thinking we should plan/arrange the Baltimore/Washington $75. I don’t remember seeing a post that the NJ $50 was held but if the stock pops like we hope, ours and the Houston $100 might be the same time. Do I hear a $125 out there? FYI - If IDCC does not sell the portfolio, I suggest we still get together, enjoy the excitement and plan for the more gradual rise which will come. We just will have to work a little harder on the licensing front.