Stock of the Day: InterDigital Communications CEO -- Howard Goldberg, CNNfn
THE MONEY GANG 01:00 PM Eastern Standard Time
April 2, 2003 Wednesday
GUESTS: Howard Goldberg
Ali Velshi, Pat Kiernan, Joya Dass
ALI VELSHI, CNNfn ANCHOR, THE MONEY GANG: Today we're shining the spotlight on a key player in the wireless technology world, but you might not know much about it. InterDigital Communications (Company: InterDigital Communications; Ticker: IDCC; URL: N/A) holds a number of wireless technology patents, including some key ones in the Third Generation or 3G arena. It recently settled a long-standing patent dispute with Sweden's Ericsson. (Company: Telefonaktiebolaget LM Ericsson; Ticker: ERICY; URL: http://www.ericsson.com/)
InterDigital Communications is our "Stock of the Day." We'll talk to the company's president and CEO, Howard Goldberg, in just a moment. First, let's bring in our stocks editor, Joya Dass.
Hi, Joya.
JOYA DASS, CNNfn STOCKS EDITOR, THE MONEY GANG: Hey, guys.
This company is based in my home state, Pennsylvania, King of Prussia, to be exact. And to tell you exactly what InterDigital Communications does, the company designs and develops technology content and systems solution for advanced digital wireless communications applications. It's a mouthful.
But it licenses 2G, TDMA, CDMA and GSM technology to wireless communication firms. And it's important to point out here that the company is also beginning to license 3G technology as well.
I want to tell you about the latest quarter. For the fourth quarter, InterDigital beat expectations with a profit of seven cents, reversing a loss of 18 cents in the same period a year ago, on fourth quarter revenue of $25.2 million.
Now, if I can also show you a chart, a one-year chart of this company, you can see that the stock is up about 75 percent. It's traded as high as $24.14. It's traded as low as $6.22. It's smack in the middle right now, trading around $18 or $19 a share.
And one of the key drivers for InterDigital Communications has been these licensing agreements. That's been a key driver for revenue. And as you just pointed out, Ali, one of their - if you take a look at this chart, you can see a big pop there, right around March 17 on that chart, when the company reached the patent settlement with Ericsson over GSM technology. In fact, it sent InterDigital shares up 30 percent on that very day.
PAT KIERNAN, CNNfn ANCHOR, THE MONEY GANG: Joya, stay with us here. Howard Goldberg is with us, the president and CEO of InterDigital.
Thanks for coming in, Howard.
HOWARD GOLDBERG, PRESIDENT & CEO, INTERDIGITAL COMMUNICATIONS: Thank you for having us.
KIERNAN: How do you explain this company to your neighbor?
GOLDBERG: Oh, it's a very exciting company, one with a lot of really good engineers that develop very cutting edge technologies.
KIERNAN: What does it do? I mean, can you - it's easy to say that Ericsson makes cellular handsets because you've got one in your pocket; you carry it around. You can kind of understand the company that makes the towers that cell signals connect to. But some of that technology in the middle is hard to explain to an investor.
GOLDBERG: Inside a little tiny handset is a still much, much smaller chip. And that chip has maybe 12 million lines of code embedded in it. And the fortunate thing for consumers is that it's totally transparent to the user. It's the most complicated consumer technology on the market, and yet it's totally transparent to the user.
And we have the very fine engineers, many Ph.D.s and advanced electrical engineering-degreed people who are developing those types of solutions.
VELSHI: So, as Joya explained, you've got licensing agreements with at lot of the big names that we know about. Does that mean that you are building this chip for their handsets?
GOLDBERG: At the present time, we're not building the chip for the handset. We monetize our investment in technology through licensing. As we transition to our 3G business model, which is somewhat different, one of the ways we're going to productize our technology is by offering both software content and chips, in partner with leading companies such as Infineon Technologies.(Company: Infineon Technologies AG; Ticker: IFX; URL: http://www.infineon.com/)
VELSHI: If I may, then, what is it that you're licensing? What is it that you're doing right now that's giving you your revenues.
GOLDBERG: In most of the cases, we're licensing the rights to use the patents, the inventions that we've created.
VELSHI: Right. So they can build those chips...
GOLDBERG: That's right.
VELSHI: ... using your technology.
GOLDBERG: That's right.
DASS: And that was kind of the bone to pick with Ericsson, right? That was what you settled the patent with them, a patent infringement suit with them.
GOLDBERG: Yes, it was.
DASS: And is there some kind of sort of rift with Nokia (Company: Nokia Corporation ; Ticker: NOK; URL: http://www.nokia.com/) as well?
GOLDBERG: No. Nokia has been a strong partner of InterDigital for four years, but part of the commercial terms of our license with Nokia, basically, said let's see where the market goes, in terms of pricing out the use of these inventions.
And we set as a barometer the licensing of Ericsson. And once that was set, that defined the level. And now it's a fill-in-the-blanks, in terms of the price.
KIERNAN: So you've got to work out these agreements, then, with the phone manufacturers, and one agreement with one of those big names can be, I guess, make or break for your company. What do you have on the horizon there? How are those relationships going, and what might you expect, in terms of future agreements from them as they move on to these next levels of technology?
GOLDBERG: Nokia has been a technology and product-focused relationship, where we've developed, for them, a key part of their Third Generation technology.
In settling the Ericsson license issue, what we did was put the past behind us and develop a good operating protocol going forward. We've established the first initial entry into a product relationship. And without the barriers of extreme time pressures that we had in settling the license agreement, we're looking to find ways to be a value-added supplier to Ericsson on the product side going forward.
VELSHI: I want to ask you about 3G. Pat and I are both folks who try to get the latest, newest cell phones. I guess we are what you call early adopters, and these are the kind of people who drive the industry. And even we, sort of in the last year, started to slow down because our phones do everything we need them to do, and neither of us have a 3G phone.
And I've heard this argument made by a lot of analysts that say, you know what? 3G was terrific talk at the end of the 90s when it was all about the latest and the newest and the biggest and you could buy a phone that would make a pizza for you and massage your feet at the same time. There's just not that much of a market for it. Maybe there is in Asia and Europe, but there isn't in North America?
GOLDBERG: Well, it is different in Asia and Europe. They do adopt earlier. Asia has tended to be a more visual society, with bigger screens on their handsets, color screens, well before we saw them.
But everything has to happen in lockstep, and we kind of get in a Catch-22 scenario. The applications have to be there to support the usage.
The time frames are going to fall a little bit behind initial expectations, but certainly, people are going to have expectations of being able to do more than go into Starbucks (Company: Starbucks Corporation ; Ticker: SBUX ; URL: http://www.starbucks.com/) and sit there with a laptop and access the Internet.
Once they get used to that, they're going to want the Internet on the go. They're going to want access to massive databases and video streaming on the go. They're going to want everything from the play of the day, wherever they are, whenever they want it, to other types of needs that are based on massive data applications on demand. That's just the way human behavior is evolving.
KIERNAN: Howard, thanks for joining us.
GOLDBERG: Thank you.
KIERNAN: Thanks for coming in. Howard Goldberg is the president and CEO of InterDigital Communications. Our stocks editor, Joya Dass, thanks as well.
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