Monday, March 24, 2003 10:57:50 AM
At this point in time ..when IDCC has a LOCK on ending the current year with over $10 per share in cash and a minimum of $3 per share in recurring royalty earnings..WITHOUT ANY OTHER SIGNIFICANT NEWS event in the next nine months..The stock, based only on CURRENT fundamentals should be trading at $45 per share today..
I most often here the word LOCK from guys picking against the spread, which has made me very skeptical of that term. It is not a lock, because as you properly point out, IDCC would be trading much higher than we are now. Nokia and Samsung have not agreed to the numbers projected by IDCC, but based on our management's conservative nature, I agree that it is probable. With those funds, $10 a share in cash seems reasonable, though not assured unless we come up with other 2G payments or 3G.
The second piece is more problematic. It's the recurring part of the earnings. While we have recurring 2G earnings, they will be declining going forward. A negative growth rate does not inspire decent multiples. The holy grail for IDCC's stock price is 3G licenses. (Data, please provide appropriate Monty Python sound bite.) 3G earning will be recurring and growing at a strong pace. Even with a rate of 0.25% for 3G I expect that we will be trading much higher than $20. We will not hit $45 until we complete 3G licenses with the big players. I am betting on our management being smart enough to have a pretty good handle on a 3G agreement with ERICY. It should be finalized in the not to distant future, resulting in the others coming on board. If IDCC does not get 3G licenses, then I will absolutely sick about the settlement. When they do sign a 3G agreement, they should announce the rate structure. Since everybody and his brother has a MFL clause, what is the point of keeping it secret? QCOM has no problem with putting out their rate. Put it out there so everyone can see it, as predictability is a big positive when it comes to getting full value in the market price of your stock.
I do hope and expect your estimates to come true, but it is not a lock. The good news is that the uncertainty gives us one last chance to buy while the price is far below what will come IF IDCC’s management executes. If we don’t have 3G licenses for the bulk of the market by year end, you can ask me what I think of management’s execution and I will tell you very strongly that I am in favor of it!
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