Replies to post #237063 on InterDigital Inc (IDCC)

[rmarchma]

Wow licensee HTC is doing great!

Hopefully they will soon go over the 10% of revenue threshold, which would then require specific royalty disclosure in the financial reports. From the HTC press release for the month of October 2008 as follows:

..."High Tech Computer (HTC) saw its revenues grow 22.4% on year to hit a record high of NT$16.04 billion (US$489 million) in October buoyed by the launch of new models, including T-Mobile G1 phones, according to company data."

If IDCC were to get just 1% royalty on all of HTC's revenues, then that would be $4.9m for the month of October. However, I'm fairly certain that IDCC does not get royalty on all of HTC's revenues, or the royalty rate is less than 1%, because HTC would have already gone over 10% of IDCC's $53.8m of recurring revenues in the third quarter.

I researched HTC's revenues for the second quarter of 2008, which would have been reported in IDCC's third quarter. HTC had total revenues in the second quarter of over NT$34 Billion or slightly over US$1 Billion, using a current conversion rate of .0305. Using a 1% royalty rate on all of HTC's total revenues of US$1 Billion, would equal $10m of indicated royalty to IDCC for the third quarter. We already know that HTC's royalty to IDCC for the third quarter had to be less than $5.4m, which is 10% of IDCC's $53.8m total recurring revenues for the third quarter. Therefore, HTC's royalty rate might be less than .54% (.54% x $1B = $5.4m), OR IDCC might not receive royalty on all of HTC's sales revenues.

I'm fairly certain that IDCC does not earn royalty on all of HTC's product sales. HTC has four major listed product lines: smartphones, touch phones, PDA phones, and mobile computers. I would think that IDCC receives royalties on the phones, but not on the full price of the mobile computers. Although HTC's mobile computers are phone-enhanced, I would think that IDCC would only receive royalty on just the phone module portion, rather the the computer's full price. IDCC might not receive royalty on the full price of the smartphones either, since they have built-in computer capabilities also. Another possibility might be the use of royalty caps, either on the price subject to royalty or upon the royalty per unit.

All this is just speculation on my part though. We really don't know much about the HTC license, or the license of any of the ODMs for that matter. Carpenter estimates that both HTC (ODM) and RIMM(OEM) each contributed somewhere between 5% to 10% of IDCC's total recurring revenues for the third quarter. I think we might get a much better financial handle on these licenses once they go over the 10% threshold, but not until then.