As most posters here know, IDCC is currently only getting paid on 50% of the 3G market. But let's look at the upside. In recent presentations they have stated that this market will double in 3-4 years (that was a quote in the Kaufman Bros. conference presentation). They have also recently indicated several times that they expect to license 100% of the 3G market. These two comments show that their revenue from 3G alone could quadruple in the next 3-4 years...but is that all? Let's think about LTE/4G (where they hold a dominant IP position) and the NPV is 900 Million for each .1% royalty (per Bill Merritt's comments). Personally, I think they will wind up getting at least 1.5% on LTE....but you can pick any number you wish and do the math (ie. at only 1% the NPV of IDCC's LTE patents is 9 Billion and our market cap is just above 2 Billion).
But, let's think about other markets they are pursuing.
The carrier/operator market represents a market that is 5-7 times bigger than the handset market according to Bill Merritt in the recent company presentations. He has shown it to be a 1 trillion dollar/year market. He has said that some customers recognize the value of what you provide and are willing to pay the highest value back. Take a look at this exchange from a while ago....
I wanted to follow up with your comments about the bigger pipes, more pipes and better pipes. Historically 99% of the licenses have been with handset manufactures, you have got 2 M2Ms, is the bigger push going forward going to be with handset manufacturers, infrastructure or the carriers or some combination of the above, maybe kind of give us some more insight into how you see that business model, specifically the revenue stream changing over the next couple of years?
Scott McQuilkin (Note: I think Seeking Alpha may have this incorrect and the responder was actually Bill Merritt CEO)
Bill Merritt CEO
Sure, the idea is to actually create top technologies that would map across all of those markets or at least more than one of those markets right, so we get reuse of technology. Certainly that occurs with respect to the basic wireless technology, because not only does that appear in terminal units but it appears in infrastructure that is utilized by operators and it’s also now appearing in consumer electronics and other such devices. So that’s a core part of the program that will continue and have applicability across all those markets.
But we are looking at other technologies as well. An example would the compression technology. Compression technology is very important in the wireless space, because there’s a need to create the smallest packet carrying the most amount of data across that network, but compression technologies also pop up in many other devices, as you know, some of the non-wireless. So again the idea is to try to create technologies that has very significant volume flow in the market.
As far as how we would go to market with these additional technologies, that is still -- I think we have a number of opportunities there, certainly with respect to some of the technologies that can be a direct licensing strategy for example with the infrastructure side of the business. I think there are other opportunities though with respect to some software solutions like MIH and other things where the better play may be directly up to the operator, because you are providing substantial either cost reduction or operational efficiency to them, and you know a lot of times, the person who delivered value too is going to pay with the highest value back, and so we have to think about where that technology is creating the best of the highest level benefit, and so that’s being worked at the current time. The idea at the end of the day of course is to move from participation in this $150 billion market into a market that is five or seven times bigger than that. And if we can do that successfully, I think it becomes very, very significant growth story for the company.
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So, let's assume Bill was giving us a straight answer and the 1 Trillion dollar carrier market is willing to license IDCC's IP, and, as he stated, willing to "pay the highest value back". How much do you think AT&T would be willing to pay IDCC if they could grow their market share by a couple of per cent by using IDCC's IP? I have no idea, but $300-400 million per year might not be out of the question. Heck, some of IDCC's IP may save them that much in infrastructure hardware costs. Once one carrier/operator signs, they will all have to sign or they will be left behind in the race for better service. Put whatever royalty rate you wish on this 1 trillion dollar market, and then see what your EPS comes out to. Then use a 25 PE. While you are at it, think about IDCC getting between 1.2% and 1.5% on the LTE/4G market of 150 Billion/yr. Just play with numbers and see what you come up with. The numbers are staggering...and I think they are real. The carriers need IDCC's MIH technology and the aggregation technologies, and they really need it now (as bandwidth limitations severely impact services in places like NYC and the Bay area). I think things are starting to happen....read these posts.
I think the institutions and analysts are just waiting to pounce on this stock with any good news....such as a win at the CAFC or an LG license renewal.
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