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CATALYSTS for future InterDigital REVENUE

Why are these catalysts important in determining the true value of InterDigital's shares?

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These revenue catalysts have the potential to produce dramatic upswings in the earnings of WirelessLedger's current focus stock, InterDigital Communications Corp. (IDCC). Posts and threads are culled from the most useful investment message board on the Internet (it is hosted by Investors Hub).

#1 Market for 2G Handsets and Infrastructure Worldwide

The worldwide market for current generation (2G) cell phones and other mobile devices in 2004 was over 600 million units, averaging about $125 each. InterDigital claims its patented technology is essential to 80% of all 2G devices and infrastructure sold worldwide. InterDigital has licensed much of this market and expects royalties, so a brisk worldwide market is a very important catalyst for revenue.

#2 2G  Licensing and Royalties

Although the manufacturers of most mobile devices and infrastructure are already licensed (even if royalty rates are not yet established for Nokia and Samsung), there are some notable licensing holdouts who manufacture tens of millions of cell phones and related infrastructure. These include Motorola, LG Electronics, Lucent, Ningbo Bird, Kyocera, TCL Alcatel, and Mitsubishi. Posts here generally relate to InterDigital's ongoing success or failure to license additional manufacturers for 2G and 2.5G. This catalyst category does not include posts relating to the Nokia-InterDigital arbitration (that catalyst section includes Nokia's tactic of 2003-2005 2G patent litigation in the UK). Nor does this catalyst include 3G licensing and Royalties (and the January, 2005 3G patent lawsuit by Nokia).

#3  3G launch worldwide

Posts relate to progress of the 3G revolution in various parts of the world. InterDigital participated in the international standards-setting process for all forms of 3G. Knowledgeable observers believe that every mobile device (e.g. cell phone) or related infrastructure (base station) built in accord with standards for 3G requires the use of considerable technology patented by InterDigital. Thus the Company expects to receive royalties on all 3G devices and infrastructure. It has a huge stake in the successful launch of next generation 3G. Particularly since royalties from 2G likely will begin to slow down in 2006.

#4  3G Licensing and Royalties

Many (mainly Asian) manufacturers have licensed with InterDigital and are already paying royalties. The Company is endeavoring to license all manufacturers of 3G mobile devices and infrastructure. How successful is the Company? Nokia has filed a January 2005 complaint against InterDigital in federal court (Delaware) seeking judgments of patent invalidity and noninfringement and violations of the Lanham Act relating 3G mobile phone technology. How will this litigation affect InterDigital’s ability to license additional manufacturers for 3G and to collect royalties from Nokia on its existing 3G license? Posts here reflect these interests.

#5  Nokia Arbitration 

The manufacturer with the largest market share. Nokia, is licensed, but the royalty rate has not yet been determined and has been submitted to binding arbitration. A final hearing is scheduled for Jan. 17, 2005 with a decision within 1-5 months, altho there could be a settlement at any time. Successful outcome of the arbitration with InterDigital would generate hundreds of millions of dollars for InterDigital very quickly, probably with a major gap up in share price. Simultaneously, Nokia has sued InterDigital in a United Kingdom (UK) court alleging that certain of InterDigital's patent claims related to GSM (2G) cell phones are invalid. Nokia apparently does not contest IDCC's patent claims regarding the 2G TDMA tech used in the USA. Nokia has also petitioned the Texas federal court that Ericsson provide a witness and certain Ericsson-IDCC related information from that litigation settled in March, 2003 for the arbitration These posts deal with the immense revenue implications of the arbitration as well the implications of the Nokia litigations in the U.K. and Texas.

#6  Samsung Arbitration 

Samsung is the second largest producer of wireless devices. Like Nokia, it is licensed with InterDigital, but the royalty rate structure has not been agreed. It also is in binding arbitration with InterDigital, with evidentiary hearings scheduled for mid-year 2005. Posts here address what is happening in this arbitration and other Samsung news that might bear on the outcome of the arbitration or a possible settlement.

#7  Lucent litigation

InterDigital is pursuing "rocket docket" litigation against Lucent for violation of IDCC's recently acquired Tantivy patents. Among the inventions covered by the patents are techniques for enabling switching efficiency and managing system capacity, which InterDigital believes are essentaial to CDMA2000 products. Although InterDigital has always claimed it owns patented tech essential for Qualcomm's version of 3G, CDMA2000, IDCC has beefed up that claim with the acquisition of Tantivy and all its patents. This "test case" is probably meant to prove the essential nature of these newly acquired 3G CDMA2000 patents.

#8  Infineon and InterDigital share a ten year partnership for the development of chips for 3G.

If these chips prove to be popular with wireless device manufacturers, the profits could be substantial. Posts here generally deal with apparent successes or failures in developing and marketing this new Infineon-InterDigital chip technology

#9  TD-SCDMA and the China Market

China is encouraging TD-SCDMA, a "homegrown" version of 3G, to strengthen local industry and reduce foreign royalties. But China can't go it alone. InterDigital and Siemens own the major portions of the essential patented tech (TDD) in this 3G standard and are working with the Chinese on its development. WCDMA (UMTS) and CDMA are the competing "foreign" technologies.

#10  JTRS-MUOS military communications overhaul

InterDigital hopes to benefit significantly in its role as a subcontractor (to one of the prime contractors, General Dynamics) in this $2 billion U.S. Military wireless communications overhaul using 3G WCDMA, where InterDigital's patented technology is essential. (Joint Tactical Radio Systems - Mobile User Objective System).

#11  Japanese Patent Office (JPO)

When the notoriously inefficient and political patent office in Japan approves one ore more of InterDigital's patent applications, Matsushita (Panasonic) prepaid royalties can finally be credited as revenue, bolstering IDCC's earnings. The same technology has been successfully patented elsewhere.

#12  How will new technologies affect InterDigital?

InterDigital's patented air interface technology is essential to all current standards for 3G, ensuring royalties for the rest of this decade. But there are many proposals for enhancing current 3G (e.g. TDD, WiFi, WLAN, OFDM, HSDPA, steerable antennas), or even replacing existing 3G standards for some applications. And some day there will be a 4G. Although a relatively small firm, InterDigital sits at many standards-setting tables and is deeply involved in developing patented technology for a variety of 3G enhancements. As new technologies jockey for postions, which of them strengthen and which could weaken InterDigital's long term position in the industry? Posts here describe progress on these technology developments and often comment of their potential impact on InterDigital.  Special attention is given to technologies HSDPA, Steerable Antenna software, and Radio Resource Management in separate catalyst headings below.

#13   HSDPA for 3G

HSDPA is rapidly gaining ground as a very important improvement to WCDMA (UMTS). The technology greatly expands capacity and efficiency in the 3G standard expected to be adopted by 80% of the world. InterDigital claims a strong place in the standards being formulated for this technology. How would InterDigital benefit from widespread adaptation of HSDPA (High Speed Downlink Packet Access)? These posts relate to the growing popularity of an HSDPA solution to 3G’s challenges, to InterDigital’s role in its development and to its profit potential for the Company.

#14   Smart Antenna Software Technology  

With the acquisition of Tantivy, InterDigital has a strong position in the 3G software technology enabling antenna to be “steered” to substantially increase efficiency. InterDigital’s proprietary software is called AIM (Adaptive Interface Management). The Company believes this breakthrough, low cost technology for mobile and WLAN devices will provide significant benefits of reducing interference, enhancing capacity and extending battery life. Atmel licensed the technology in December 2004. Posts here discuss the technology and its potential for present and future InterDigital revenues. 

#15   Radio Resource Management Software   

InterDigital is offering a complete suite of smart radio management software algorithms that significantly improve WLAN performance. The Company offers radio frequency architecture that delivers lower cost, higher performance and improved battery life.  . Posts here discuss the technology and its potential for present and future InterDigital revenues.  (This section is under construction)

Why are these catalysts important in determining the true value of InterDigital's shares?

A key difference between analysts who report on InterDigital Communications Corp. is the consideration each gives to catalysts for future revenue, the subject of this WirelessLedger.com report. (View all publicly available analyst reports on InterDigital).

For example, Frank Marsala, of First Albany Capital, consistently bases his revenue predictions (and therefore his target share price) on a discounted free cash flow methodology. Mr. Marsala takes an ultra conservative approach, limiting his revenue expectations to highly predictable sources of income. A much different approach is taken by Scot Robertson, the Stanford Group, who believes that the catalysts for revenue for InterDigital are so compelling that a portion of their potential revenue should be factored into even conservative earnings forecasts. Mr. Robertson has one of the most insightful and comprehenesive stock analys reports WirelessLedger.com has seen. It is certainly the most insightful report on InterDigital Communications. (Read Scot Robertson's most current analyst report.)

This is a portion of what Mr. Robertson wrote in his November 24th, 2004 report on InterDigital:

"Combined with our current assumptions on the existing revenue structure, in theory, InterDigital could generate roughly $350 million in 2005 revenue (vs. a model $139 million) . . . Although extremely difficult to fully guage given all the moving parts (i.e. . sales and marketing, general and administrative, patent and licensing, and development expenses), conservatively, based on the above revenue scenarious, we estimate 2005 earnings could be in excess of $2.50 and possibly reach $3.00 per share (vs. a modeled assumption of $0.50). As one may infer from our projections, it is clear that in our opinion, the majority of this additional revenue will drop straight through to the bottom line. . . . "

"At our current price target of $29 per share, InterDigital would be valued at roughly $1.60 billion (current diluted share count of 55.3 million), which equates to roughly15.9x our modeled 2004 revenue estimate, and 10.9x our modeled 2005 revenue estimate. However, under the potential 2005 revenue scenario we illustrated above, the multiple contracts to roughly 4.6 times 2005 revenue. On an earnings basis, the company is trading at 72.5 times our modeled 2005 EPS. However, under the sensitivity analysis we detailed, where 2005 EPS could finish between $2.50 - $3.00, the multiple contracts to a range of 9.7x to 11.6x. Therein lies the difficulty of the story -- is InterDigital worth $29 in the current market given these potential catalysts? We certainly believe so. WIth a solid and growing stream of revenue from current licensees in conjunction with an incremental revenue opportunity that has the potential to finish in excess of two times our published 2005 projection, in our opinion InterDigital is one of the most compelling players in the wireless sector. . . . "

Scot Robertson concludes his report narrative:

"Under-valued relative to our 2005 sensitivity analysis assumptions. InterDigital remains our top pick in the mobile wireless sector via its broad intellectual property, solid industry relationships with leading wireless OEMs, and strong balance sheet. It is obvious to us that many on the street looking for revenue or secular earnings growth will probably be dissatisfied with this concept. However, for those who recognize the contributions InterDigital has made in various aspects of the 2G, 2.5G, and 3G air interface standards worldwide, we believe a good deal of money could be made in this stock. Clearly, we believe that the shares could move quite suddenly in fiscal 2004 and we recommend investors establish positions in this stock now for this long-term. Clients interested in the story should not be caught empty handed if a major announcement results from the Samsung, Nokia, or Panasonic situations. Meanwhile the company continues to move forward on every aspect of W-TDD from the physical layer to the access stack. We maintain, as we have before, that InterDigital can play a seminal role in the next era of mobile communications."

"Given the revenue scenario layered with so much potential upside, we believe it would be foolish not to weave some of this upside potential into our InterDigital valuation perspective. Earlier in this report we discuss the potential revenue scenario InterDigital retains as the company enters fiscal 2005. Given our current fiscal 2005 revenue assumption does not factor potential upside from successful arbitration resolutions with Samsung and Nokia, and a patent validation process with the Japanese Patent Office (JPO), which would trigger royalty revenue from Panasonic, in our opinion InterDigital remains under-valued relative to the company's potential forward revenue scenario. Although requiring a bit of patience and some faith in the arbitration process, we believe InterDigital's future revenue opportunity is a compelling incentive to own the shares now. While quantifying the potential value of the company's forward revenue stream remains problematic given that certain assumptions must be estimated, we illustrated a scenario conservatively detailing just how much incremental revenue could be associated with the company's basket of potential catalysts. Accordingly, we reiterate our BUY rating and $29 price objective." Scot Robertson. Stanford Group Company.

Read Scot Robertson's most current analyst report on IDCC here.