AN INVENTORY OF PROGRESS
MAKING STEADY PROGRESS ON 4G/LTE LICENSING
- Since February 22nd, InterDigital has made steady progress in 4G/LTE licensing by signing three additional licenses. Although the monetary value of the licenses are modest, the signings add to the commercial legitimacy of InterDigital's 4G/LTE patent portfolio. The three licenses, Cinterion, ublox, and Sierra Wireless helps InterDigital to form a strong market position in the machine-to-machine category.
PROGRESS ON 3G LICENSING IS MORE VISIBLE
- Claims against Huawei, Nokia, ZTE has establishes a timeline for 3G licensing. At this point the timeline for litigation has been established by the ITC. The trial is scheduled to conclude in October 2012, with a decision by February 2013.
- Huawei and ZTE have both indicated in counterclaims to the ITC that they are willing to license, but are not willing to pay the rates demanded by InterDigital.
- We do not have any revenue forecasted for these potential 3G licenses.
WAITING ON PROMISED EXECUTION
- During investor meetings at the beginning of March, Management made a promise to sell up to 2000 patents to interested parties within three to six months. The size of the transaction is expected to be in the "hundreds of millions" of dollars range. Each $100M of cash is worth $2.00/fd share.
- In the same timeframe, the company promised to sign a "major" LTE license. This would form part of our 4G/LTE estimate. Our forecast assumes that current 3G licensees would become 4G licensees.
WE ARE GIVING MANAGEMENT CREDIT FOR LG AND SAMSUNG RENEWALS
- Although we are not giving any credit to Management for potential new 3G licenses, we are giving the company credit for renewing Samsung and LG 3G licenses with an equivalent sum-of-the-parts value of $13.00
- Our renewal assumes that LG resigns for about half of the original 3G license that expired in December 2012 and that Samsung renews for essentially the same amount as before, which is about $100M/annum
WE THINK THAT WE HAVE RIM AND HTC WEAKNESS ACCOUNTED FOR
- Our unit estimates for both RIM and HTC aligned exactly to actual reported. So we believe that our short-term per unit agreements are probably correct.
NOTWITHSTANDING - APPLE IS SUCKING VALUE FROM INTERDIGITAL
- In 2007, InterDigital signed a modest annual fixed license agreement with Apple worth an estimated $8.0M per annum. As Apple wins more market share from both RIM and most of the Android ecosystem, IDCC loses more earnings growth potential.
- It is our opinion that the iPad and all 4G/LTE enabled devices are excluded from current license Apple agreements. There is opportunity for the company to rectify its licensing situation with Apple.
WE MAINTAIN OUR BUY RECOMMENDATION AND 12-MONTH TARGET OF $54.00
- When we initiated coverage with a $48.00 target on IDCC during September 2010, the company had a weaker 4G/LTE patent portfolio and no visibility on 3G licensing with Huawei, or ZTE. Despite per unit licensing weakness, the company probably has better visibility on growth now than in 2010.
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