Thanks Paul. Those cash payments alone (net of foreign witholding taxes) should be good enough to cover IDCC's cash burn plus or minus 100 more wireless engineers for the next 12-18 months.
In the last 12 months IDCC has received $39M in 3G advance payments from Matsushita and NEC. Against outstanding shares of 56M, those payments represent $0.71 per share in 3G deposits to be credited against future sales. Since the most popular, if somewhat wearisome, comparison made with IDCC is usually with QCOM, which has 809M outstanding shares, it's useful to point out that the equivalent amount for QCOM is $574M in advance payments to get $0.71 per share in 3G payments.
QCOM, however, is a certified big fish in a small pond (2G CDMA/3G CMDA2000/WCDMA) while IDCC, is a certified small fish in a much bigger pond. The 2G TDMA/GSM market is 4x bigger than the 2G CDMA market and IDCC has more than 150 contributions to the WCDMA standard. The latter explains the bifurcated nature of IDCC's recent deals in which there appears to be some degree of contingency between the 2G TDMA/GSM licensing deals and the outcome of the ERICY case. The 3G WCDMA/CDMA2000 component of the deal has a relatively cleaner formulation because there is no legal cloud over IDCC's CDMA patents and IDCC is an active participant in the various standards bodies.
ARMHY, which is in the embedded core licensing business, would appear to be the more natural comparison for IDCC's licensing model while it gradually ramps its fabless chip business. ARMHY has clearly been the more consistent financial performer during the last 5 years while IDCC became a turnaround after the 1995 Motorola debacle and is just now starting to regain its footing with a still-lumpy sales stream that will probably be smoothed over in the next year or two once the next phase of the 1999 Nokia deal goes into effect.
The 1999 Nokia deal already includes a pre-agreed framework for 2G and 3G royalties. The engineering component of the original 3-year deal was also recently increased from $40M to $58M, or by 45% so the working relationship appears to be going well. In early 1999, Nokia had less than 25% of the global market for handset. Now it is on its way to 40+% of the global market in the next 36 months so this relationship alone will allow IDCC to keep on recruiting engineers and innovating in areas that Nokia, by virtue of size, will not be able to source internally without time to market penalties.
ARM HOLDINGS (ARMHY)
Market Cap - $4.28B
TTM Sales - $157.1M
PSR - 27.2x
1996 1997 1998 1999 2000
Sales ($) 24.0M 38.2M 60.8M 89.3M 144.9M
Sales (%) 100% 100% 100% 100% 100%
Gross Margin 75% 75% 80% 84% 88%
SG&A 35% 37% 35% 30% 30%
R&D 18% 23% 27% 28% 26%
Operating
Margin 23% 15% 18% 25% 31%
Interest
Income/Sales - 2% 4% 4% 4%
INTERDIGITAL (IDCC)
Market Cap - $628M
TTM Sales - $57.7M
PSR - 11.0x
1996 1997 1998 1999 2000
Sales ($) 53.7M 49.8M 99.2M 70.7M 56.9M
Sales (%) 100% 100% 100% 100% 100%
Gross Margin 49% 16% 82% 92% 92%
SG&A 29% 39% 21% 24% 39%
R&D 40% 49% 17% 29% 46%
Operating
Margin (21%) (72%) 44% 37% 6%
Interest
Income/Sales 7% 3% 2% 5% 12%
Recurring
Royalties NA NA 1.0M 9.4M* 34.1M*
Recurring
Royalties/Sales NA NA 1.0% 13.0%* 60.0%*
* Adjusted for SAB101 in 2000.
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