billyjean, go through this post with me:
Art -- here's my post of last month re: patents; which is as valid today as it was then. The facts are that IDCC's patents for 2G are generating pitiful revenues, and there's no way to know other than past performance that the 3G patents will do any better.
IDCC's patent for 2g are not generating pitiful revenues. Out of the total group of TDMA suppliers, IDCC's TDMA revenues were derived from less than 19% of the total worldwide TDMA/GSM/PDC installation. With the addition of the Nokia license, IDCC's TDMA market share has now risen to over 50%. Nokia's TDMA/GSM revenue per handset will be calculated or added into the equation once Nokia's and IDCC's contract for TDD is completed. Nokia's portion of the TDMA renewal picture has not been added into the revenues IDCC has yet to receive. Ericsson remains in a court battle with IDCC over IDCC's TDMA contributions. The court battle is to determine the amount to which Ericsson infringed. If we follow the SM report only, we can determine that the SM agreed on nine different issues that Ericsson did in fact infringe.
stefankim -- it's more than a good question. Your question goes directly to the heart of the IDCC conundrum. If the patent
portfolio is so good -- where's the beef?
the beef, of course, is in the lettered agreements which IDCC has signed to date. there remain only a few outstanding issues to be resolved relative to full bi-modal WCDMA deployment (WCDMA/GSM, WCDMA/PDC). the licensing of 3g technology is not Qualcomm depdendent. Nokia has licensed IDCC's 3g technology. of course, to those who own tons of Qualcomm, this appears as a threat since Nokia has not licensed such from Qualcomm as yet.
First of all 3G which is a lot easier to deal with because the first systems are only just now rolling out in Korea with Japan
No. there are NO 3g systems rolling out just now. ONLY tested systems that are WCDMA. The only quasi-3g systems that are being put into place are CDMA2000 1X systems that broadcast in a 1.25mghz range. The ITU defines CDMA "3g" (both MS and DS) as a broadcast of 5mghz spread or greater. Qualcomm has chosen to market their 1X as a 3g deployment when, in reality, 3g doesn't come into full play until 3X is deployed.
So right now there are no 3G revenues. As investors we are left to ponder the technical arcana of
"over 800 patents" and less than quantitative statements like "engine and transmission" and "a calculator with a lot of
zeros." I'll come back to 3G later.
"engine and transmission" have a specific meaning relative to bi-modal and tri-modal deployments. if he doesn't know what that meaning is, he needs to contact IDCC and request that they supply him with such. And yes, 3g has produced no revenues except for testing and instrumentation. So, on one hand he wants to know where the beef is at, and yet on the other he is complaining that no 3g revenues have been produced. He implies in his complaint that IDCC hasn't produced as many 3g licenses as have Qualcomm. But, Nokia represents nearly 40% of the world handset market share. Qualcomm's 3g licensees for WCDMA/CDMA2000 deployment do not make up even 20% of total world market share. I would guess that Qualcomm would give up the 20% in order to have a 40% number any day. But, anyway, this is not the ultimate point.
With 2G which is really what your question refers to, IDCC claims to have "essential" or in the old lingo "blocking" patents
on CDMA, TDMA (including the Japanese variants) and GSM. This represents virtually 100% of 2G. So why in the 12
months ending 6/30/00 did IDCC have roughly $40 million in royalty and partnership (NOK work) revenues while QCOM
had about $650 million?
It is interesting that he is comparing IDCC's 20% TDMA licensed market share with Qualcomm's 100%. Qualcomm collects their $650 million in royalties from many different sources, including chipset production. IDCC does not. IDCC's royalties come from handset percentages and specific infrastructure deployments. Even so, when Nokia's market share is added into the equation at the end of the working agreement you'll witness a significant spike in earnings.
The answer IMHO lies in the quality of the patents. In any of the alphabet soup of standards (CDMAOne, CDMA2000,
WCDMA, GSM, EDGE, GPRS, etc., etc.) there are scores of companies with thousands of patents for each. Only the
patents which are really key generate any real revenue. The rest, the turn signals and electric door locks, either get
nuisance value, usually an up front payment without continuing royalties, some other restrictions which reduce the amount
owed, a low royalty rate, or the equipment manufacturers say "so sue me." The real answer is that the quality of IDCCs
patents are such that they do not command the same levels of revenue that QCOM's do.
No, again. IDCC's patents DO command such a level in the deployment of bi-modal/tri-modal streams and TDD. He doesn't mention any specific patent that IDCC is claiming for either 2g or 3g because he doesn't know. He refers instead to "windshield wipers". He needs to re-read IDCC's January 24 press release and note that IDCC's interface patents are strongest in two specific areas, (a) bi-modal/tri-modal interface handset production (note, the first 3g handsets will be non-ITU compliant WCDMA handsets only), and (b) TDD addition. Those who bash this company NEVER use specifics. They use generalities which they can never support, and/or take a sardistic 'wait and see' attitude couched in extremely negative terms. They've never attended a single conference, yet they offer extensive non-specific advice regarding what IDCC does or does not have.
Using your split and what I
believe is QCOM's average of about 4% gives a QCOM revenue base for calculation of royalties of about $16 billion. If
this equals 15% of the 2G market, then the TDMA/GSM market would be about $90 billion leaving IDCC with an implied
royalty rate of less than 0.1%. In my opinion this speaks volumes about the underlying patent quality.
This represents such fuzzy math that it's an exercise in futility to even combat. For one thing he is comparing a 100% QCOM market share against a less than 20% IDCC share.
The die hards will cite the incorrect outcome of the MOT trial and the ERICY infringement, but even if MOT and ERICY
were paying licensees would we get to a 0.5% implied royalty rate? Probably not.
again, his "probably not" is the extent of his study. he's not run any specific numbers as to what market share these two companies represent OR the remaining companies that have not come to the licensing table.
This brings us back to 3G. Is there any basis to believe that the patent quality has improved? Is there any reason to believe
that the "engine and transmission of all 5 standards" isn't just the engine and transmission of the windshield wipers? I for
one remain unconvinced in spite of several months of DD.
again, there is no "windshield" wipers in the 3g mobile standard. non-specifics are used because ignorance remains the ruling party when discussing IDCC on the internet. Qualcomm is the leader, therefore you have Qualcomm holders who appear threatened by IDCC that continue to bash this company for no specific reason other than to establish their own agenda.
Will IDCC participate in 3G? Sure. At these prices might it be an interesting speculative buy? Yes. Will the wild revenue
claims of Mickey etal. be realized? No.
they finally state in their condesending manner that "sure" IDCC will be used, but imply only to a tiny extent. the fact is that Nokia holds 40% of the world market share in handsets. Nokia projects that their 3g infrastructure market share will be no less strong...they state this because they say that they can deploy WCDMA infrastructure at 50% the cost of a current GSM structure. Qualcomm has NEVER made this claim because Qualcomm can't. They can't replace a GSM and/or TDMA structure with a CDMA2000 structure at 50% the cost of a comparable GSM. This intial cost figure for replacement runs closer to 150% to 200%. Qualcomm spreads their cost structure out over many years to arrive at a lowered cost figure claim. I do not believe that Nokia uses similar fuzzy math spreading.
they want the so-called "whores" to respond to what appears to be nothing more than babble.
in the end we'll see who obtains the 3g technology licensing edge and who remains nothing more than watershed. |
