From rmarchma at RB:
Analysis of IDCC Revenues for 2002 and projections for fourth quarter
From the 10Q as follows:
"Revenues
Revenues for the nine-month period ended September 30, 2002 (first nine months 2002) increased to $60.8 million from $44.2 million in the nine months ended September 30, 2001 (first nine months 2001). First nine months 2002 royalty revenue increased to $56.3 million from $24.8 million in the first nine months 2001. The increase was due largely to (i) nearly $8.0 million of initial patent licensing royalties attributable to the pre-2002 build-out of 3G systems in Japan by NEC, (ii) over $17.0 million of other patent licensing royalties from NEC related to current year sales of covered products under the 3G Agreement ($8.3 million) and the settlement of the 2G Dispute ($9.1 million), (iii) recognition of $6.9 million of deferred revenue associated with a non–refundable and non-transferable royalty prepayment previously received from a licensee, Kyocera Corporation (Kyocera), that has discontinued sales of covered GSM products, and (iv) an increase of $5.9 million in royalties from licensee, Sharp. In the first nine months 2002, specialized engineering services revenue associated with the final stages of the WTDD technology development work for Nokia was $4.5 million, compared to peak development related revenues of $19.4 million in the comparable period last year. For the nine months 2002, revenues related to the WTDD technology development work were calculated and recorded in accordance with the percentage of completion method. With respect to this arrangement with Nokia, the final $1.0 million will be witheld by Nokia until final delivery of the remaining technology required under the agreement. We currently expect final delivery to occur in the second half of 2003 and to recognize the final $1.0 million of specialized engineering services revenue associated with the agreement at that time."
From the above information, a detailed break-out for the total revenues of $60.8m for the first nine months of 2002 as follows:
NEC pre-2002 3G infrastructure $8.0m
NEC 3G royalty earned from 2002 sales $8.3m
NEC settlement amounts $9.1m
Total earned revenues from NEC $25.4m
Kyocera one-time earned deferral $6.9m
Nokia engineering services $4.5m
Sharp and all other manufacturers $24.0m
Total cumulative revenues 2002 $60.8m
Estimated Sharp royalty $18m (minimum)
Estimated all other manufacturers $6m (maximum)
I estimate Sharp’s recurring royalty through the first nine months of 2002 to be at least $18m two different ways. First Sharp provided almost $6m of additional revenues in 2002 over the 2001 royalty amounts from the above 10Q statement. Sharp provided $16m total revenue in 2001 or $4m per quarter pro rata x 3 quarters = $12m for first nine months in 2001 + $6m increase in 2002 = $18m estimated. This additional $6m would also represent a 50% increase over 2001. Recent statistics actually published by Sharp show that their handset sales increased 51% over the last six months this year compared to last year.
I get the $18m estimate for Sharp a second way. Based on recent data, Sharp sold 3m total handsets in Japan during the last six months April – September. I now estimate that Sharp sold 1m handsets during the first three months this year. A total of 4m handsets sold thru nine months x $4.50 estimated royalty per handset ($225 estimated average wholesale price per handset in 2002 x 2% royalty rate) = $18m total royalty. Sharp sold a total of about 4m handsets for all of 2001 at an average estimated price of $200 x 2% = $4 royalty per handset x 4m handsets sold in 2001 = $16m total royalty for 2001.
If my Sharp estimate of $18m for the first nine months is correct, then all other manufacturers (excluding NEC, Sharp, Nokia, and Kyocera) generated a maximum of $6m for the first three quarters or $2m per quarter. Last year all other manufacturers (excluding Sharp, Nokia, and NEC, who did not settle until 2002) generated about $16m in total revenue or $4m per quarter. Either sales are way down for these other licensees in 2002, or some licensee (s) has/have quit paying or reporting. I think that the adverse JPO decision in the fourth quarter of 2001 caused some Japanese licensees to quit paying or quit reporting IMO. I find it hard to fathom that IDCC is “booking” royalty on a double digit number of licensees per the CC, and is only getting $2m per quarter at most from all these other licensees.
The real purpose for analysis is to help project the future. Three of the above revenue sources so far in 2002, will not be there into the fourth quarter. Therefore one has to exclude the NEC pre-2002 infrastructure, the Kyocera earned deferral, and Nokia engineering service revenues going forward. There is only $1m remaining on the Nokia engineering services contract, and that will not be recorded until final delivery in the second half of 2003. Therefore base revenues going forward include Sharp, NEC settlement and 3G ongoing sales, and the other manufacturers earned royalty.
If you only use the base revenues in the third quarter going forward into the fourth quarter, one would project about $14m total revenue (Sharp = $6m, NEC =$6m ($3m settlement and $3m ongoing 3G), and $2m other manufacturers). However, I already see much better signs for positive developments to IDCC in the fourth quarter.
Sharp is now selling camera phones into the European market through Vodaphone, as well as in Japan through J-Phone and Docomo. Sharp is currently selling 1.5m handsets per quarter in Japan based upon the last two quarters. I think Vodaphones’s initial Sharp camera phone order for Europe is for about a half million. Therefore, let’s conservatively project Sharp’s sales at 2m handsets for the fourth quarter x $4.50 royalty per handset = $9m royalty from Sharp.
NEC will begin delivering a 2m 3G handset order to Hutcheson in the fourth quarter. NEC is continuing to supply 3G infrastructure to Docomo and Hutcheson in the fourth quarter for the 3G additional network roll-out in Japan and Europe. NEC’s total 3G recurring and settlement royalty was $8m in the second quarter, and $6m in the third quarter. I would estimate that NEC would at a minimum equal the $8m revenue for the second quarter in the fourth quarter. But with all those extra 3G handsets in the fourth quarter, let’s conservatively project $9m also from NEC in the fourth quarter.
Matsushita and Toshiba do not pay royalty for 2G PDC/PHS sales in Japan. However, they should pay royalty on 2G TDMA-based sales outside of Japan. Both Toshiba and Matsushita began selling GSM/GPRS handsets to the European markets in the fourth quarter for the first time. IDCC should earn royalty on these 2G TDMA-based handsets sold outside Japan. But I have not seen any projected numbers for these handsets sales yet. Let’s project that the royalty income from other manufacturers will have to get better in the fourth quarter, just based on Toshiba and Matsushita, to at least $3m for the fourth quarter. Therefore, I’ve very conservatively projected royalty revenues of $21m for the fourth quarter, which should put IDCC in the black for the fourth quarter. This projection does not consider any new developments with Ericd, Nokia, Samsung, or any possible new licensee in the fourth quarter.
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