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Technology Stocks : Interdigital Communication(IDCC) -- Ignore unavailable to you. Want to Upgrade?

To: Manx who wrote (4894)	3/19/2003 5:02:32 AM
From: Gus	Read Replies (1) \| Respond to of 5195

QCOM has a successful fabless chip biz on top of its IP royalty business so the valuation comparison is not exactly apples-to-oranges. Maybe a Price to Sales ratio somewhere between QCOM (>9x) and ARMHY (>3x) would be appropriate for IDCC *for now* while its free cash flow generation model is being smoothened and it examines its rapidly expanding set of post-settlement options including M&A. Right now, it looks like IDCC will exit 2003 with an annual revenue run rate of $200M and around $80M in total operating expenses or accrual net income of around $120M (>$2/share). I think we will get more visibility into 2004 and maybe 2005 later this year. So right now IDCC is trading at around 5x estimated 2003 sales, right between QCOM (>9x) and ARMHY (>3x). Assuming the one-time 2002 settlements ($156M-$181M), the 2003 prepayments ($106M-$120M++) and 2004 prepayments ($80M-$106M++) all come in during FY2003, IDCC will also exit 2003 with at least $400M in cash/investments after exiting 2002 with only $88M. Three other points: 1) I think IDCC should position its equity better for institutional investors by increasing the float through an increase in outstanding shares from 55M to around 100M shares. 100M is probably liquid enough for most small-cap and midcap-oriented funds. Right now, IDCC only has 55M shares compared to QCOM's 800M+ shares and ARMHY's 330+M shares. Increasing the O/S from 55M to 100M would also means that in addition to its prospective $400M+ cash warchest, IDCC would also have at least $800M in buying power using its stock as currency in the effort to increase its revenue base from what is currently estimated to be $40M+++ per quarter sometime this year. That's a total buying power of around $1.2B in buying power at a time when the global telecom industry is consolidating. At this stage, I think that companies with existing revenue flows are probably better than pre-revenue companies. It's entirely possible that IDCC will eventually exceed even QCOM's multiples simply due to the limited supply of shares even after asssuming that iDCC increases its O/S to more than 100M shares. I do hope they use the cash gusher mostly for M&A and don't pig out on employee stock options. The times, they are a'changing (see FASB's proposed rules). 2) I also would like to see them to hook up with sleeper VC firms like Tallwood Ventures which specializes in *non-sticky* fabless chip ventures. The founders of Tallwood have already started at least 3 successful billion-dollar fabless chip companies -- Chips & Technologies (mobile graphic/networking chips, acquired by Intel), S3 (graphic chips, now SonicBlue SBLU) and Marvell (storage controller chips, MRVL). After being in the litigation trenches for so long, I think IDCC needs to quickly graft a relatively new start-up culture into the existing company culture to offset any vertigo-related issues.<g> 3) Give Howard Goldberg anything he wants. Anything.<g>