InterDigital CEO hails Apple deal but firm not yet committed to Avanci 5G programme
William New and Angela Morris
04 November 2022
InterDigital CEO hails Apple deal but firm not yet committed to Avanci 5G programme
The close to $940 million licensing deal that InterDigital secured with Apple, which was announced last month, was hailed by the firm’s CEO Liren Chen on an earnings call yesterday. The agreement, which runs until 2029, represents a 15% increase over the previous one.
“Our new deal with Apple is a huge validation of both the quality of our innovation and the strength of our patent portfolio,” Chen stated. “I would also add that Apple is a clear leader in the roll-out of 5G, particularly in the premium tier of the smartphone market, so this deal serves as a resounding endorsement of the strength of our portfolio.”
However, while recognising the growing contribution of royalties from the auto sector via Avanci, the firm is not yet committed to the platform’s proposed 5G programme.
The Apple renewal, reached without litigation, carries no variable cost so essentially represents 100% gross margin, making it “the most valuable contract we have ever signed in our 50-year history”, Chief Financial Officer Rich Brezski said on the call. The revenue will begin to show in the fourth quarter.
The third quarter results, with 8% growth year-on-year giving it the sixth consecutive revenue increase in consumer electronics, IoT and automobiles, “once again demonstrate how our innovation is becoming more valuable in an increasingly connected world”, said Chen. During that time, it signed licence agreements with Vizio, Sony, Amazon and others. Due to confidentiality, details of scope of the licence could not be shared.
The company has signed 16 agreements over the last 18 months with a total estimated contract value of more than $1.5 billion, it reports.
Quarterly recurring revenue increased 8% to $101.0 million, compared to recurring revenue of $93.4 million in third quarter 2021, according to company release. The company increased recurring revenue in both its smartphone (up 4%) and CE, IoT/auto markets (up 60%).
There was scant mention of InterDigital’s next big renewal, which will be with Samsung, whose current deal finishes at the end of the current quarter. However, there was no indication of any problems, with Chen stating: “So far [in the] Samsung negotiation, we have been negotiating mobile opportunity renewal, as well as consumer electronics (primarily TV) in parallel.”
Automotive sector driving growth
InterDigital’s aggregate annual recurring revenue for consumer electronics and IoT/auto has risen approximately 140%, from $23 million in first quarter of 2021 to more than $54 million in the third quarter of 2022.
Including catch-up payments from past infringement, the firm has reported approximately $75 million in total revenue from these markets in the last nine months, Brezski said. By comparison, Nokia recently reported revenues of $101 million in non-traditional areas such as automotive and consumer electronics.
InterDigital’s growth in the consumer electronics and automotive sectors is on track to deliver annual revenue this year of nearly $100 million. “This is excellent progress and underlines our belief that our innovations are only become more critical across a growing number of industries,” Chen said.
Chen highlighted progress in the auto sector and the licensing success that had been achieved via the firm’s membership of the Avanci platform. “In the third quarter, automobile was particularly strong with several manufacturers, including Toyota, Honda and Nissan,” he said. “All took a licence to our portfolio of 3G and 4G patents through our licensing partner. These agreements mean that more than 100 million connected vehicles are now licensed to our 3G and 4G technology, with another 30 million to 40 million forecasted to be licensed in the next year.”
However, when asked about whether InterDigital will be going it alone on 5G in the auto sector or joining Avanci’s planned programme, Chen was non-committal. “We are actually ready for either approach. But we see a lot of incremental value of 5G enabled connected cars on top of the 3G, 4G,” he said.
Looking forward
Asked by an investor about streaming opportunities, Chen replied that through its own R&D and the acquisition of Technicolor InterDigital has built a strong pipeline and has one of the strongest video patent portfolios in the industry. "We have done a lot of work designing our licensing programme in that space. We are optimistic about the opportunity, but it will take time to grow," Chen stated.
Although this is a period of significant economic uncertainty, Chen stated that InterDigital may be better situated than most in the industry to weather any storms as 80% to 90% of the firm’s licensing agreements are fixed fee and long-term (five years and above). However, he added that the firm is “not completely immune” when it has renegotiations for renewals.
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