Is InterDigital Patenting a Growth Story?

InterDigital (Nasdaq: IDCC  ) -- which develops wireless technologies for mobile devices, networks, and services -- reported a fall in third-quarter sales to $76.5 million. But the fall was less than what analysts expected. Let's have closer look at InterDigital's matrix of numbers to gauge its performance.

Into the matrix
While the company's results bettered estimates, sales and profits fell from last year's figures. While total revenues plummeted 17%, net income also plunged 26% to $26.2 million.

InterDigital's patent licensing royalties fell by 13% to $75.3 million. The fixed fee part of the company's royalty revenues decreased by 33% to $33.2 million. This was mainly because of the absence of $14.4 million from LG Electronics in the form of royalties.

Per-unit royalties took a haircut to $34.2 million from the $35.8 million from the year-ago quarter, primarily because of a reduction in royalties from Japanese customers. However, this decline was offset by growth in customers associated with the burgeoning smartphone market.

Revenues from technology solutions got knocked down to $1.2 million from $5.8 million in the year-ago quarter, mainly caused by agreements that were concluded in 2010.

Patenting profits
InterDigital is laughing its way to the bank because of demand for its wireless technology portfolio of around 1,300 patents. Investors seemed buoyed by the company saying it's still considering selling its patents.

Those patents could serve as powerful weapons against heavy competition in the telecommunications space.

A group backed by Apple and Microsoft agreed earlier this year to buy Nortel Networks' patent portfolio for a princely $4.5 billion. InterDigital claims that its own patent portfolio is more precious than those auctioned off by Nortel. And this claim seems plausible because the third quarter saw huge revenues from many high-value customers.

Patenting the future
Besides all the patent riches, the company boasts a strong cash position totaling $690 million. This would let InterDigital continue to develop next-generation wireless technologies, including advanced LTE designs. With sustained success in this space, the inventions from research will ensure future earnings for the company.

The Foolish bottom line
Analytical and market intelligence firm IDC expects 500 million smartphones to be shipped by the end of 2011, and this number is anticipated to double to 1 billion by the end of 2015. The slow economy is expected to play spoilsport in the near term, but with the ever increasing proliferation of smartphones, InterDigital has a long runway.

Keki Fatakia does not hold shares in any of the companies mentioned above. The Motley Fool owns shares of Apple, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, Microsoft, and InterDigital. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 28, 2011, at 12:41 PM, GoodToBeDaking wrote:

    You are also forgetting about the litigation with Nokia which represents almost 900 million in owed fees for use of IDCC patents. It is currently in CAFC for ruling. This is almost 50% of it's current market cap as a company and a favorable ruling would force the rest of the companies using their patents to line up and pay.

    This may be a mute point regardless if the expected consortias bidding for the company come to fruition.

  • Report this Comment On October 28, 2011, at 1:44 PM, CLoree1 wrote:

    You say they have 1,300 wireless patents, which is incorrect.

    They have 19,000 patents and patents pending, the majority of which are wireless.

  • Report this Comment On October 28, 2011, at 8:12 PM, bbbboyd wrote:

    How long can Nokia keep this charade of appeal after appeal in court? If they lose in CAFC, what is the next LEGAL move they can make without having to pay IDCC? This is blatant theft of IDCC's intellectual property and needs to stopped and made an example to all the other thieves who are stealing IDCC's technology. This has gone on WAY too long and needs to be stopped now. No more appeals or other legal maneuvers. Enough is enough! Pay up!

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