InterDigital Inc (IDCC)

[nieves]

All- A Piper Jaffray Report. Thanks Dave and Jim
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Technology
Monthly Channel Checks: Mixed Results For New
MOT Phones
KEY POINTS:
• Our monthly channel checks suggest January domestic handset sales tracked in
line with most store managers' expectations of a seasonally slower January
following the holiday rush. We noted T-Mobile may have experienced a slightly
weaker January in part due to competitors launching newer handsets.
• According to our checks, Motorola's GSM phones continued strong sell-through
trends, with early indications of strong demand for the new SLVR phone at
Cingular. In fact, more than half of stores we contacted indicated they were sold
out of their initial limited inventory (usually 5 phones per store). We also noted
the RAZR and V557 were top selling products at Cingular, and the V360 and
Pink RAZR were top-selling products at T-Mobile. However, our checks
indicated the much-anticipated PEBL was off to a very slow start at T-Mobile
stores, as the higher price ($299) and overall design of phone was not nearly as
popular as the RAZR with T-Mobile consumers.
• For Motorola's CDMA sales, the E815 EV-DO handset was still one of the
stronger selling phones at Verizon, but we were somewhat surprised the RAZR
was not selling as strong as expected. Some store managers indicated battery life
and inability to remove the memory card as reasons for not recommending the
phone.
• We were also surprised by ramping sales by Samsung products at Verizon with
their 950 and 850 handsets selling well, and the A900 ("BLADE") handset was
the best selling handset at Sprint Nextel for the second straight month according
to our checks.
• Our January checks indicated Nokia's North American market share continued to
improve due to solid traction of the Nokia 6101 at T-Mobile and 6102 at Cingular
in the mid-tier segment. While Nokia lacked competitive high end products, we
expect further product launches over the next several months, including the
higher ASP N70 and E61, should enable Nokia to build on the success of 6100
series. In part due to several Cingular stores having limited supply of RAZR
products in early January, we believe this enabled Nokia to gain share during
January.
• We were also encouraged by both Samsung and Sony Ericsson's progress at
carriers. Our checks indicated Samsung's T309 and higher end T809 were both
selling well for high-end phones at T-Mobile, the 850/950 selling well at Verizon,
and the A900 selling well at Sprint. Cingular channels indicated strong demand
for Sony Ericsson's W600i "Walkman" phone along with the mid-tier Z520.
• We believe CDMA handset sell-through trends were in line during January, with
Verizon Wireless stores noting in-line sell through trends of EV-DO handsets
from Samsung, Motorola and LG. We believe Sprint continues to ramp EV-DO
handset sales due to strong demand for Samsung's A900 ("BLADE") phone. As
the US market transition to EV-DO continues to gain momentum, we believe this
mix shift will positively impact QUALCOMM's chipset and royalty ASPs.
RISKS
Continued global subscriber growth, strong replacement sales, the timing of
WCDMA network launches, and healthy replacement sales of handsets are key
variables behind the price targets of our covered companies. If growth rates are
slower than our expectations then the shares may not reach our price targets.
Industry Note
February 6, 2006
T. Michael Walkley, Sr Research Analyst
612 303-6459, [e-mail]
Amit Kapur, Sr. Research Analyst
212 284-9303, [e-mail]
Quan Zhang, Research Analyst
612 303-6476, [e-mail]
Piper Jaffray & Co.
Reason for Report:
Industry Overview
Related Companies: Share Price:
ANAD 6.74
ANDW 13.30
ANEN 17.18
ERICY 35.45
IDCC 25.24
MOT 21.17
NOK 18.15
OPWV 20.53
PWAV 14.09
QCOM 46.08
RFMD 7.28
RIMM 70.69
SMDI 7.45
SWIR 12.74
SWKS 5.18
TQNT 4.65
TRMB 38.72
Page 2 of 8
Normal Slower January, Mixed Results for Key New Motorola Products
Our monthly channel checks suggest January domestic handset sales tracked in line with most store managers' expectations of a
seasonally slower January following the holiday rush. We noted T-Mobile may have experienced a slightly weaker January in part due
to competitors launching newer handsets.
Overall, we believe Nokia continued to gain share during January due to strong sales of its 6100 products at T-Mobile and Cingular.
As we noted in our January 6 note entitled, "Monthly Channel Checks: Strong Finish to Holiday Season," many Cingular stores
were sold out of RAZR products in early January. As such, we believe Nokia took advantage of this and continued to gain share in
North America during January.
Our checks also indicated improving trends for Samsung and Sony Ericsson during January. Our checks indicated Samsung's T309
and higher end T809 were both selling well for high-end phones at T-Mobile, the 850/950 selling well at Verizon, and the A900
selling well at Sprint. Cingular channels indicated strong demand for Sony Ericsson's W600i "Walkman" phone along with the
mid-tier Z520. While Motorola may have lost some market share during January, we believe the ramp of the SLVR product will lead
to Motorola regaining share during the remainder of the quarter at Cingular.
Motorola (MOT-MP): Strong Initial SLVR Sales: Slow Initial PEBL Sales
For Motorola, our checks indicated mixed results for its important new products. Our checks indicated strong demand for Motorola's
SLVR at many Cingular stores. In fact, about half of stores we called indicated they immediately sold out their initial limited inventory
of SLVR, although most stores only received about 5 phones in initial shipments. With a compelling price of $199 combined with its
strong design, we believe the SLVR will post strong sales during 1H06 in North America. We note the SLVR was not available in
many markets, but we expect its shipments to ramp during the next couple months.
While we were encouraged by Motorola's early strong sales indications of the SLVR with Cingular customers, we were disappointed
that PEBL sales at T-Mobile were relatively slow. In fact, many of the stores we contacted were having trouble selling the PEBL, as
several stores indicated they had sold none to one of the original 15 PEBL's received. Also, the PEBL has been available on-line for
roughly one month, and feedback from T-Mobile representatives indicated slow sales for this new Motorola product. While the PEBL
just launched and the marketing campaign is just starting, we believe the $299 price may prove too high for consumers when
comparing the PEBL to RAZR and SLVR products. We continue to believe SLVR is a much more important product than PEBL, and
we believe the strong SLVR start offsets the weak PEBL start in North America.
According to our checks, Motorola's GSM phones continued strong sell-through trends, even though Cingular had some limited supply
during the first few weeks of January. Our checks indicated continued strong demand from the RAZR and V557 at Cingular, and the
Pink RAZR and V360 at T-Mobile. For Motorola's CDMA sales, the E815 EV-DO handset was still one of strong selling phones at
Verizon. However, we were surprised our channel checks indicated Motorola's EV-DO RAZR was not selling as strong as expected
with several store managers not recommending the phone due to battery life concerns and limited memory. Even with a new pink
RAZR at Verizon, we were surprised several Verizon store managers were emphasizing the Samsung 950 and 850 handsets more than
the RAZR products. Samsung's CDMA success was also clear at Sprint with the A900 ("BLADE") handset gaining strong sell-through
momentum.
With the competition for thin form-factor handsets increasing, competition for North American market share appears more heated in
early 2006. We remain cautious pricing pressure may impact Motorola's RAZR platform during 2006, although we still believe
Motorola remains well-positioned to maintain its strong North American market share in the near term due to our expectation of
near-term strong sell through trends of SLVR and new product launches such as the Q-Phone and the ROKR E2.
Nokia (NOK-OP): Sales of 6101 and 6102 Handsets Remain Solid
Overall, we believe Nokia continued to gain share during January due to strong sales of its 6100 products at T-Mobile and Cingular.
As we noted in our January 6 note entitled, "Monthly Channel Checks: Strong Finish to Holiday Season," many Cingular stores
were sold out of RAZR products in early January. As such, we believe Nokia took advantage of this and continued to gain share in
North America during the month of January.
While our checks indicated Nokia's North American market share remained solid in the mid-tier segment due to solid sales of the
Nokia 6101 at T-Mobile and 6102 at Cingular, we believe Nokia still needs a stronger higher end product offering for the North
American market. Though its high-end 6682 phone continues to capture limited sales at Cingular, we believe Nokia has to come up
with more competitive higher end products to build on the success of the 6100 series clam-shaped phones at Cingular and T-Mobile.
Industry Note
February 6, 2006
Page 3 of 8
We expect additional product launches over the next several months, including higher ASP N-Series and E-Series phones, which
should improve Nokia's higher end product offering.
QUALCOMM (QCOM-OP): EV-DO Transition Remains Evident
We believe CDMA handset sell-through trends were basically in line with January seasonality. Verizon Wireless stores noted strong
sales of EV-DO handsets such as the Samsung 950/850, LG VX8100, and Motorola CDMA RAZR. Sprint stores indicated strong
sales of Samsung's EV-DO A900 "BLADE" phone, as Sprint continues to ramp its mix of EV-DO phones. We remain encouraged by
enthusiasm over Verizon's EV-DO "V CAST" service, as well as greater variety of handsets available at Sprint Nextel. With the solid
sales of the Motorola RAZR, E815, the LG VX8100, and the Samsung 950/850 at Verizon Wireless and Samsung's A900 at Sprint
Nextel, we believe EV-DO phone sell-through trends continue accelerating in North America.
Strong Initial SLVR Sell Through and Solid V.557/V.360 Sales Support RFMD's (RFMD-OP) Polaris Sell-Through
We were encouraged by solid sell-through of several Polaris design wins such as the Motorola V.557, V.360, and SLVR that should
support near-term trends for RFMD. We were particularly encouraged by signs of lean channel inventory for the Motorola SLVR at
Cingular. Over half of the stores contacted indicated they had already sold out of their initial shipments, quantities of which we believe
were limited. We believe this bodes well for Polaris unit demand as Motorola accelerates shipments of the SLVR to retail channels. As
well, we believe Nokia's solid traction in North America in January should support RFMD's near-term trends. We were disappointed
our checks did not indicate better sales of the Motorola PEBL at T-Mobile. In fact, the PEBL was not mentioned as a top-selling
phone, we believe due to the form factor and prior success of the Pink RAZR potentially cannibalizing the PEBL's target market.
While we will closely monitor sales of the PEBL in coming months, we believe sales of other Polaris design wins, particularly the
SLVR, will be more than enough to offset any weakness in component shipments to the PEBL.
Several Skyworks (SWKS-OP) Design Wins Remain Strong
Sell-through of several Skyworks design wins, including the GSM version of Motorola's RAZR, as well as the Motorola E815,
remained solid. We were a bit surprised the CDMA version of the RAZR did not perform better at Verizon Wireless, although we do
not believe this weakness is enough to offset strong underlying demand for Skyworks other design wins such as the GSM version of
the RAZR and Sony Ericsson "Walkman" phones. According to our checks, the RAZR remained a top selling phone at Cingular and
T-Mobile and we believe sales should remain strong over the next few months due to further planned price cuts. As well, we believe
the Motorola E815 remained a top-selling phone at Verizon Wireless. With growing price competition between Cingular, T-Mobile,
and Verizon Wireless for RAZR customers, we believe near-term shipments of RAZR handsets could remain strong and thus provide
support for Skyworks' near-term trends.
Research in Motion (RIMM-MP): 8700 Series Devices Drive Replacement Sales
Our checks suggest the Blackberry 8700 series devices maintained its solid traction in the enterprise device market during the month
of January, as BlackBerry subscribers upgraded to this new product at Cingular. However we noted the introduction of Palm Windows
Mobile based Treo700w at Verizon led to a share shift at Verizon stores from BlackBerry sales to Palm sales. We continue to believe
RIM will post strong February quarter device sales due to the launch of the 8700 at Cingular. However, our checks indicate this is
more of a customer upgrade sale than a driver of new subscribers
We remain cautious the launch of the 8700 will act more as a hardware upgrade for existing BlackBerry subscribers, rather than a
significant expansion of BlackBerry's addressable market. Also, with the ongoing threat of an injunction (ruling is expect to come out
in late February.) combined with increasing competitive offerings, we believe potential BlackBerry subscribers may further delay
deployments or switch to alternative solutions if NTP-related uncertainty continues. With our belief compelling new devices from
competitors such as the Palm Treo 700w and Nokia E61 will pressure ASP and margins of RIM's handset business, we remain
cautious longer term on RIM. However, we believe strong near-term sales of 8700c bode well for RIM's February quarter.
Carrier-Specific Observations
Cingular:
Based on our checks, we believe handset sales at Cingular remained in line during January. Our checks indicated the new introduction
of the Motorola SVLR ($199) stirred strong consumer interest. We also noted once the RAZR ramped back into the channel, it
remained one of Cingular's best-selling phones. Other top-selling phones included the Sony Ericsson W600i ($199) and Z520
($39.99), the Nokia 6102 ($29.99), and the Motorola V.557 ($49.99). We believe Cingular now has adequate supply of RAZR
products. In fact, several store managers indicated a further price reduction of RAZR back to the $99 promotion is expected in the next
few weeks. Overall, Cingular store managers indicated sales were in line with expectations during January.
Industry Note
February 6, 2006
Page 4 of 8
Sprint Nextel:
Our checks indicated January sales at Sprint generally met internal plans. Our checks indicated the Samsung A900 "BLADE" ($200)
was the top selling phone, followed closely by the Sanyo 8300 ($79) and the Samsung A920 ($50). We were encouraged by the strong
performance of Samsung's A900 thin form-factor handset, as we believe it will help stimulate customer interest in Sprint's handset
portfolio. As further EV-DO product launches follow the A900, we expect Sprint's mix of EV-DO products to increase over the next
several months.
T-Mobile:
Based upon our checks at T-Mobile, we believe handset sales for the month of January were a bit slower than store manager
expectations due in part to lack of new attractive handsets. Our checks indicated slow sales of PEBL, which was T-Mobile's primary
new handset in 2006. Our checks indicated the Motorola RAZR phone was still among the best-selling phones, along with the
Samsung T309 ($79) and T809 ($299), the Nokia 6101 ($149), and the Motorola V.360 ($125-199).
Verizon Wireless:
Our checks at Verizon indicated handset sales for the month of January were basically in line with store manager's expectations. We
were a bit surprised that the much-anticipated EV-DO RAZR ($199) was not the top selling phone at Verizon during the month, as the
LG VX8100 ($149) and Samsung 950/850 ($99/$39) were more often mentioned as top selling phones. We believe Verizon continues
efforts to improve its handset product portfolio, particularly its variety of EV-DO handsets, and we expect further compelling handset
launches over the next few months that will stimulate demand for EV-DO devices and services. With the solid sales of the Motorola
RAZR and E815, the LG VX8100, and the Samsung 950/850, we believe EV-DO phone sell-through trends continue accelerating in
North America.
Industry Note
February 6, 2006
Page 5 of 8
Piper Jaffray
Retail Direct Store Channel Checks
Appendix A
Sales Change MoM: Apr-May/05 June/05 July/05 Aug/05 Sept/05 Oct/05 Nov/05 Dec/05 Jan/06
AT&T (merged with Cingular)
Cingular slight up flat flat slight up slight up flat up up slight down
Sprint PCS slight up flat flat flat flat flat slight up up down
Verizon slight up flat flat slight down slight up slight up slight up up down
T-Mobile slight up flat flat flat flat flat slight up up down
Most Popular Handsets
Sprint PCS Sanyo 8200,
Sanyo 200
Sanyo 8200,
Samsung
A740, Sanyo
7400
Sanyo 8300,
Samsung
A740
LG PM-225,
Samsung
A740
Sanyo 8300,
Samsung
A880
Sanyo 8300,
Samsung
A840
Sanyo 8300,
LG PM-225,
Samsung
A840
Samsung
“Blade”, LG
PM-225,
Samsung
A840
Samsung
“Blade”,
Samsung
A920/940,
Sanyo 8300
Verizon Samsung
A670, LG
VX6100,
MOT V.710
Samsung
A670, MOT
V.710, LG
VX6100
MOT E815,
LG VX8100,
MOT V.710
MOT E815,
LG VX8100
LG VX8100,
MOT E815
LG VX8100,
MOT E815
MOT E815,
LG VX8100,
Samsung
950
LG VX8100,
MOT RAZR,
MOT E815
LG 8100,
MOT RAZR,
MOT E815,
Samsung
950
T-Mobile Samsung
x475,
Samsung
e315, MOT
V.188, MOT
V.330
MOT V.330,
Samsung
X475
MOT RAZR,
NOK 3220
MOT RAZR,
NOK V.330
MOT RAZR,
NOK 6101
MOT RAZR,
MOT V360,
NOK 6101
MOT RAZR,
Danger
Sidekick II,
MOT V360,
Samsung
T309, NOK
6101
MOT RAZR,
Samsung
T309, NOK
6101, MOT
V.360,
Samsung
T809
MOT RAZR,
Samsung
T309, NOK
6101, MOT
V.360,
Samsung
T809
Source: Piper Jaffray
* Handset listed first typically more popular - see details for further color
MOT
RAZR,Sony
Ericsson
W600i, Nokia
6102, MOT
V.557
MOT RAZR,
NOK 6102,
MOT V.551,
Samsung
X497
MOT RAZR,
MOT V.551,
NOK 6230
MOT RAZR,
MOT V.551,
NOK 6230
MOT RAZR,
MOT V551,
NOK 6102
Cingular MOT RAZR,
Sony
Ericsson
W600i, Z520,
Nokia 6102,
MOT V.557
MOT RAZR,
NOK 6230,
MOT V.551
MOT RAZR,
MOT ROKR,
NOK 6102,
MOT V.551
MOT V.551,
MOT RAZR
Page 6 of 8
Important Research Disclosures
Distribution of Ratings/IB Services
Piper Jaffray
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [OP]
HOLD [MP]
SELL [UP]
314
280
20
51.14
45.60
3.26
76
33
3
24.20
11.79
15.00
Note: Distribution of Ratings/IB Services shows the number of companies in each rating category from which Piper Jaffray and its affiliates received
compensation for investment banking services within the past 12 months. NASD and NYSE rules require disclosure of which ratings most closely correspond
with "buy," "hold," and "sell" recommendations. Accordingly, Outperform corresponds most closely with buy, Market Perform with hold, and Underperform
with sell. Outperform, Market Perform and Underperform, however, are not the equivalent of buy, hold or sell, but instead represent indications of relative
performance. See Rating Definitions below. An investor's decision to buy or sell a security must depend on individual circumstances.
Industry Note
February 6, 2006
Page 7 of 8
Important Research Disclosures
Analyst Certification — T. Michael Walkley, Sr Research Analyst
Analyst Certification — Amit Kapur, Sr. Research Analyst
The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my
compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
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• Outperform (OP): Expected to outperform the relevant broader market index over the next 12 months.
• Market Perform (MP): Expected to perform in line with the relevant broader market index over the next 12 months.
• Underperform (UP): Expected to underperform the relevant broader market index over the next 12 months.
• Suspended (SUS): No active analyst opinion or no active analyst coverage; however, an analyst investment opinion or analyst coverage
is expected to resume.
• Volatility Rating: Our focus on growth companies implies that the stocks we recommend are typically more volatile than the overall stock
market. We are not recommending the "suitability" of a particular stock for an individual investor. Rather, it identifies the volatility of a
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• Low: The stock price has moved up or down by more than 10% in a month in fewer than 8 of the past 24 months.
• Medium: The stock price has moved up or down by more than 20% in a month in fewer than 8 of the past 24 months.
• High: The stock price has moved up or down by more than 20% in a month in at least 8 of the past 24 months. All IPO stocks
automatically get this volatility rating for the first 12 months of trading.
Industry Note
February 6, 2006
Page 8 of 8
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Industry Note
February 6, 2006


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