InterDigital Inc (IDCC)

[Rational Investor]

Thanks HenryW and postyle for the link to the Jefferies report.

Some comments:

The report is quite old, July 2011, and much more info has come to the fore in the last few months regarding rates that is being charged currently by Microsoft, Nokia, Qualcomm, and others.

Jefferies based their $3-10 billion valuation on rates for 4G being only slightly higher than for 3G.

Royalty increase from 4G
InterDigital expects to see a slight increase in its royalty rates for 4G vs. 3G due to its
stronger position. InterDigital had a much stronger position in 3G vs. 2G. Management
believes the improvement with 4G is not as substantial, but the company could still see a
~10% increase in royalty rates.

What was the avg rates for 3G charged by IDCC? 0.75 % ?
If you use the 3-5 % rates being charged by other companies currently going forward for 4G/LTE, the valuation changes significantly!

Jefferies states "according to independent industry research and reports" that IDCC owns 16% of the total 4G/LTE essential patents. Based on either a total aggregate patent royalty rate of 15-25 %, IDCC can easily command at least 2.4 - 4 % royalty rates for 4G.

It looks like Jefferies used a 1% rate in their "quick analysis" and calculated a $3-$10 saving per handset. I have previously shown that I think with the new rates, the saving for Apple could be closer to $20 per handset on future 4G sales. That would bring the IDCC "worth" to the Apple business only , according to the calculation methods of Jefferies in the range of $9 - $20 billion or $180 - $400 / share.

But apple would also have to pay licensing fees to others for 4G/LTE. Owning IDCC and its patent portfolio would significantly increase their ability to sign reduced cross licensing deals with would brings about even more savings to them. IMO Apple would be a fool NOT to buy IDCC. They have the cash, its just a matter of price ...