mike what do you know about so called 3G wireless? If this is in the near future does it cause concern for qcom.
Phone firm dialing up a new focus
For years, InterDigital has been trying to sell systems. Now, it wants to license its
wireless technology.
By Henry J. Holcomb
INQUIRER STAFF WRITER
The president of InterDigital Communications Corp. believes his small King of Prussia company
can become to wireless communications what Intel Corp. is to personal computers.
That's a bold dream for a small company, founded in 1972, that didn't make money until last year,
and still has some some big battles ahead.
Still, William A. Doyle insists that the profit his company earned last year - $17.5 million on
revenue of $37.8 million - is a sign that a new strategy, launched quietly about three years
ago, is working.
In February, InterDigital achieved its biggest coup - a long-term "cooperation agreement"
with Nokia Telecommunications of Finland, the world's largest supplier of cellular phones,
to develop the next generation of mobile wireless technology.
This agreement, worth $70 million to InterDigital, and others like it are meant to move the
company away from the business where it lost money - designing, manufacturing and selling
complete wireless phone systems, mostly in rural areas where running wire is too costly.
Its new strategy is to earn the bulk of its profits from licensing patented technology to major
companies. It will, it says, stay active in developing wireless-phone-system technology while
moving boldly into the mainstream of the mobile cellular-phone business.
"We're going to specialize in communications interface technology . . . not make handsets.
We're going to let the big players do that," Doyle said in a recent interview.
InterDigital will develop and provide the chips and other patented technology that will soon
allow worldwide roaming with personal cell phones and high-speed wireless access to the
Internet from portable computers and pocket-sized devices.
In its engineering laboratories at 781 3d St. in King of Prussia and on Long Island,
InterDigital's 220 employees are working on technology that will permit surfing the Web and
participating in video conferences while sitting on a park bench or in a car.
Its model is Intel, the giant computer-chip maker.
In the very cost-competitive personal-computer market, Doyle said, "Intel keeps making
money because it sells processor chips to every single one of the major players. That model
is what InterDigital would like to do. Our arrangement with Nokia does not preclude us
from similar technology arrangements with other wireless players."
InterDigital is moving dramatically into technology development and away from making,
selling and servicing complete wireless telephone systems.
The new strategy became obvious in 1997 to those who follow patent activity, said Diana
Hicks of CHI Research Inc., a Haddon Heights firm that specializes in analyzing the
performance of science and technology companies.
The strength and impact of InterDigital's technology increased dramatically in 1997 and
1998, she said. While others in communications technology commonly patent devices, Hicks
said InterDigital is patenting the whole architecture of systems.
She said InterDigital's patents also have a much higher-than-usual number of references to
scientific data. "They had four patents in 1997 and 1998 that each had more than 200
scientific references."
This dramatic increase in patent documentation came after a 1995 jury verdict against
InterDigital in a patent-infringement lawsuit that it had filed against the giant Motorola
Corp.
InterDigital says the heavier documentation is part of its new worldwide licensing strategy.
"Our patents now use volumes of scientific research papers, journal articles, and other
patents to establish state of the art at the time of our invention," said Bill Merritt,
InterDigital's general counsel.
"When you take that kind of patent to a prospective licensee, they are impressed," he added.
Doyle said the need for the new licensing strategy became apparent to him soon after he
became president in 1994.
He had joined InterDigital in 1991 as executive vice president and general counsel, after
holding technical and management posts at Environmental Control Group Inc., Martin
Marietta Corp. (now Lockheed Martin), and Burroughs Corp. (now part of Unisys). He holds
degrees from three area universities - a 1971 bachelor's from St. Joseph's, a 1973 master's in
mathematics from Villanova, and a 1980 law degree from Temple.
In 1994, with 80 percent of the world's population without telephones, InterDigital was still
betting heavily on the widely anticipated future growth of wireless communications.
It seemed positioned to grow rapidly with its patented Wireless Local Loop technology that
links central radio-transmission towers to widely scattered telephones in residences, offices
and even pay stations.
"It was a marketplace that was projected to grow. It was always a rosy picture," Doyle said.
But InterDigital never could get big enough to finance and support major installations that
would make the business profitable. And many countries without phone service lacked funds
to pay for it.
InterDigital still plans to recoup its investment in Wireless Local Loop technology by
licensing it to large companies that can provide the financing and in-country presence
needed to capture profitable 300,000-line contracts.
This technology also could give major players such as AT&T an alternative to cable
companies in their quest to become rivals to companies such as Bell Atlantic Corp. in local
phone service, Doyle said.
Doyle said the Wireless Local Loop technology has improved to the point where it can
provide bandwidth on demand, so a customer can move huge amounts of data at much less
cost than full-time access to a high-volume link.
Still, InterDigital is far more excited about its potential with so-called 3G wireless - the third
generation that follows the initial analog and current digital cell-phone technology.
InterDigital has been creative, Doyle said, in designing licensing agreements to fit the
accounting systems of many countries as well as its own urgent need for a predictable
revenue stream that pleases Wall Street and for money to invent new technology.
And its technology is patented in virtually every country in the world.
But there are some difficult struggles ahead. They aren't technology issues, Doyle said. They
are decisions on standards, on which "there is still a lot of work to be done."
Some high-stakes political battles are ahead as officials seek to replace a mishmash of
second-generation technology with a single global standard for the third generation. Major
players will be playing hardball to make that new standard compatible with their existing
technology.
There also are worries about management instability at InterDigital. The company is once
again looking for a chief executive with technological credentials and a rapport with Wall
Street.
The job has been vacant since 1997, when Gregory Webb, a former strategic planning vice
president at rival Qualcomm Inc., was fired after only seven months on the job. Webb had
replaced William J. Burns, who was CEO for less than two years.
Doyle, the president, insists that InterDigital's leadership is stable now. The unstable period,
he said, "was triggered by the departure of a strong CEO, Bill Hillsman, which set off
internal power struggles" that have run their course.
Despite that turmoil and years of losing money, Doyle said InterDigital has built a strong
staff by offering "a wonderful working environment . . . state-of-the-art, stimulating work. .
. . Our employees are given responsibility and work on exciting projects."
"There was," he said, "always cash to sustain the operation."
In recent years, Doyle said, "the staff was aware that the losses were planned losses . . . the
staff knew it was a conscious effort to get to the marketplace with our technology, that it
was part of the strategic plan to shift the company. We communicated with the staff every
step of the way." |
