RE: IDCC/ERICY Settlement Impact on Nokia and Samsung
1) Assuming all the payments come in FY2003, IDCC will have cash and investments of around $250M-$300M or around $4.00 to $4.50 per share assuming 55M-60M shares!!!
2) Back of the envelope figuring, recurring royalty income on a per annum basis could be anywhere from $2.50 to $4.00 per share again assuming 55M-60M shares!!!!
3) Annual free cash flow could exceed $150M -- or $2.50 to $3.00 per share -- for the next few years assuming IDCC maintains the same cost structure.
4) Yeah!!!!!!!!!!!!!!!!!!!!!!!
2002 2003
(Retroactive) (Current)
Sony/Ericsson $ 34M $ 6M+ per unit%
Nokia $100M-$120M $ 80M-$ 90M
Samsung $ 22M-$ 27M $ 20M-$ 24M
Total $156M-$181M $106M-$120M+++
NOTE: IDCC estimates Nokia and Samsung will generate $80M to $106M in royalties in 2004.
.........The license agreements with Ericsson and Sony Ericsson establish the financial terms necessary to define the royalty obligations of Nokia Corporation (Nokia) and Samsung Electronics Co. Ltd. (Samsung) on 2G GSM/TDMA and 2.5G GSM/GPRS/TDMA products under their existing patent licensing agreements with ITC.
Under the most favored licensee (MFL) provision applicable to their respective patent licenses, both companies are obligated to pay royalties on sales of covered products from January 1, 2002 by reference to the terms of the Ericsson and Sony Ericsson licenses. The MFL terms include provisions for a period of review, negotiation, and dispute resolution with regard to the determination of royalty obligations of Nokia and Samsung.
Based on the Company's application of the MFL provision, currently available third party estimates of Nokia's and Samsung's sales of covered products in 2002, and the Company's assumptions regarding such items as Nokia's and Samsung's sales mix, selling prices, and market share, the Company projects that Nokia's royalty obligation for 2002 could be in the range of $100 million to $120 million and Samsung's royalty obligation for 2002 could be in the range of $22 million to $27 million.
Further, based on the application of the MFL provision and assumptions noted above, recent market forecasts, and the prepayment of royalties (net of related discounts) consistent with the terms of the Ericsson and Sony Ericsson agreements, the Company projects that 2003 royalty revenue from Nokia could be in the range of $80 million to $90 million, 2003 royalty revenue from Samsung could be in the range of $20 million to $24 million, and the aggregate prepayment of royalties from Nokia and Samsung for 2003 and 2004 could be in the range of $180 million to $220 million. Once these initial prepayments are exhausted, Nokia and Samsung can either make additional prepayments (net of related discounts) for twenty-four month periods, or pay royalties at the base rate on sales through 2006. The Company will not record revenue associated with the Nokia and Samsung license agreements until all elements required for revenue recognition are met.
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