InterDigital Inc (IDCC)

[Dave Davis]

Key Excerpts from Hillyard Lyons 1-16-03 report

InterDigital’s trial with Ericsson that was scheduled to begin on February 10, 2003 was delayed until May 15, 2003. Our understanding is that the judge did not order the delay, but it instead was agreed upon by both parties. Except for knowing the outcome sooner, we are reluctant to suggest a delay is necessarily good or bad for InterDigital. However, we offer the following points.

The Good.

It is possible that progress was made in negotiations, and each side wanted more time to reach a negotiated settlement. With the trial slated to begin in less than one month,
we believe that this is a plausible, but not probable scenario.

The Bad.

In our view, a delay in the trial gives Ericsson more time to prepare its case. We would not have given Ericsson more time, especially on the heels of its unfavorable verdict
in the Harris Corporation patent case that it recently lost. Additionally, a delay in the trial likely further delays a Nokia or Samsung royalty rate finalization.


Net, net, we are disappointed in the delay. On top of the unfavorable Samsung arbitration ruling and insider selling, we believe IDCC needs to have an incremental positive, whether it be an impactful new licensee, engineering development work, or a combination of the two. Otherwise, it is hard to justify InterDigital’s stock price remaining in the mid or high teens. However, we still believe by the middle of 2003, IDCC will have new licensing agreements
in place with some combination of Ericsson, Nokia, and Samsung. As such, we reiterate our BUY rating and $22 price target, which is based on a ten-year discounted cash flow analysis. Risks to our price target include unfavorable resolution of the Ericsson litigation and IDCC never resolving its royalty rate issue with Nokia and Samsung or resolving it on unfavorable terms.