InterDigital Giving Coal This Season

On an already bleak day for U.S. equities yesterday, wireless technology developer and Motley Fool Stock Advisor recommendation InterDigital (Nasdaq: IDCC  ) underwhelmed shareholders with predictions of reduced fourth-quarter revenue. Now that its technology licensees have reported their past quarter's sales, InterDigital estimates that it will report between $54 million and $55 million in revenue.

The news wasn't the holiday cheer investors hoped for. Much like the last time InterDigital reported lower revenue, the stock was summarily punished, ending down 13%. In a particularly disconcerting development, InterDigital expects the recurring royalty revenue portion of its earnings to come in at $50.5 million to $51.5 million, significantly below the $56.5 million reported in the last quarter.

In a terse statement, CFO Scott McQuilkin cited softness in the Japanese market as the main reason behind the tepid revenue. This would make sense, since InterDigital's top three licensees -- LG, Sharp, and NEC -- made up more than 60% of its revenue. And each of these companies has a significant, if not dominant, position in the Japanese market.

The "softness" in Japan could just be a near-term slowdown of mobile device sales overall, or a drop in the market share of InterDigital's licensees. But while global supplier Nokia (NYSE: NOK  ) has been gaining worldwide market share as Motorola (NYSE: MOT  ) continues to struggle, neither are a huge force in the hypercompetitive Japanese market.

With recent licenses signed with customers like Research In Motion (Nasdaq: RIMM  ) , and Apple (Nasdaq: AAPL  ) though, InterDigital should be seeing less revenue concentration in future quarters. This should help smooth out the occasional ups and downs experienced in mobile markets, though some cyclicality will always be a part of the wireless device business.

Overall, 2007 has been a down year for InterDigital's stock, which has declined by more than 40% year to date. But most of the company's developments in that time have been positive, and its fundamental story hasn't changed. The list of licensees for its intellectual property continues to grow, and InterDigital is aggressively pursuing holdouts resisting royalty payments. While plenty of risks remain ahead for the company, cheaper shares of InterDigital may be the gift some investors were wishing for after all.

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