The end of the review process, the CC, Q4 earnings, & the future...
Here are my thoughts... First, this wasn't the result shareholders were hoping for when IDCC started the Strategic Alternatives review process last July. Ending the process without a single overall bid was somewhat of a worst-case scenario in terms of reaction in the marketplace. Had they ended the process without a sale, but at least could reveal one or more strong bids they turned down, that would have been much easier to stomach for most. Although I will agree it would have been better to have at least shown something for an effort - such as selling some patents related to infrastructure or 802.xx - it does make sense that accepting those kind of offers during the process would have prevented them from a possible overall sale.
Traders - well, you could have done well or gotten clobbered - depending on your positions (or lack of positions). Hope nobody got hurt too badly. Longtime holders who have been in IDCC since before the last run -- you didn't fare too poorly last year. Having watched this stock hit the $80s in late 1999/ early 2000 ..you got another bite at the Apple (no pun intended) proving that lightning does often strike twice, even if it does take a decade or so. Plenty of opportunities to lighten the load, especially for those who rode this up and all the way back down the first time without taking any off the table. Short-time owners - I feel your pain. You are the ones who got the short end of the stick if you bought in the $50s or so. I'm not a big fan of making short-term price predictions and or making trade or purchase advice. Today's announcement and reaction is exactly why. In the end, everyone makes their own investment decisions and has to live with them. So let's discuss what's in IDCC's future now that they are going to continue operating as an individual, publicly owned company.
The Conference Call. There was some good information in the CC and Q&A session, short as it was. Notably absent was Ron S. of MPartners. I won't speculate on what this means, but based on the results of the SR and his silence recently, there has probably been some damage done in regards to this relationship. That's too bad because he was a breath of fresh air when compared to past/present IDCC analysts. IDCC released some decent Q4 numbers ahead of the CC which was obviously an attempt to do some damage control. The entire call was an attempt to save face after disappointing shareholders. Although one can speculate that the BOD and management haven't exactly been on the same page when it came to this review process. As much heat as WM will be taking for this failure (and we can't really call it anything else), he will be happy to be staying in control and earning a healthy wage - along with other key personnel. It's business and it's natural.
From the start of the CC, WM made it clear there was no overall bid but a lot of interest in smaller patent portfolios. Obviously, every one wanted the crown jewels (essential 3G/4G LTE IPR) and not everything else. So now that the process is over, it looks like IDCC will be trying to sell some non-core patents and smaller pieces of their core patents. That would be a coup if they can still negotiate strong 4G licenses after trimming some of their valuable patents from the portfolio. Hopefully, IDCC will take what they learned from the process - when interacting with potential bidders/buyers - and use that to their advantage going forward. Perhaps some key partnerships will evolve.
Some things Merritt did say about the process were refreshing to hear, at least to me, since they confirmed some thoughts I shared with the board in the past year. First, despite what DealReporter published, encumbrance was not an issue. WM said encumbrance was viewed as a positive, not a negative as various agreements were "rolling off" - just as we had posted here when speaking of Samsung, RIM, etc. Also, he was asked about the FRAND vs non-FRAND element coming into play. As was posted here previously, WM confirmed there are advantages to having FRAND-declared patents and IDCC's portfolio is a mix of both FRAND and non-FRAND declared patents.Ultimately, based on the feedback he received during the process (or the lack of specific feedback) he received, WM said he did not believe this was an issue at all during the process. (Note to readers of patent bloggers: don't believe every opinion that is published by those tied to powerful commercial and/or political entities).
Also, since the CAFC appeal decision has yet to be rendered and since the anti-trust decision relating to Nortel's asset auction has not yet been publicized - I think it's hard to say with any conviction that either of these issues had a legitimate impact on the strategic review process. However, a case can be made that since no bid was made overall for IDCC that they were influential. Since we can't prove a negative, I think it's best to let these issues die with the failed SR.
Another item of note from the Q&A was related to future licenses. Sarah from Barclays seemed either really nervous or unprepared as her question didn't exactly make sense. Anyway, WM's answer to her was revealing. He said (I am paraphrasing here) that he expects some current licensees to have to upgrade for LTE, and others not to. To me, this seemed to hint that current agreements were still in force for 3.9G LTE although IDCC's position is that manufacturers will need to increase their rates as we transition to LTE-Advanced in 2013 and beyond. I also got the impression the Apple's license pretty much covers them through the term of the agreement, which ends in just a couple of years (We're getting closer!!!). I still hope to get an update on Foxconn sometime in the near future.
At present, I am not entirely pleased with the handling of the entire review process and outcome. Granted, as time passed and no results were announced month after month, it became incrementally easier to accept that the process wasn't what I initially believed it to be. At the beginning it seemed highly likely that IDCC was going to be sold. But they are still here and I'm still here. And there remains a solid long-term opportunity for this company to continue to grow. I'm not convinced IDCC will hit their $800 million goal they announced today, but even if they come close - the stock should be trading at a much higher level than it is presently. As always, all IMHO.
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