A Global Giant Preps for Patent Profits

Ericsson (Nasdaq: ERIC  ) , the world's leader by far in sales of mobile infrastructure -- "100 percent larger than player number two," according to a company statement -- is set to become the key player in the world of wireless patents.

"By 2015 two thirds of all consumer electronics devices will have some sort of connectivity," Ericsson CEO Hans Vestberg told Bloomberg last month. "Any company or manufacturer that wants to get in there will need an agreement with Ericsson."

That's a strong statement from Vestberg, and he can back it up. Ericsson holds the largest portfolio of vital patents for the latest wireless broadband technologies, 3G and 4G. Those include one-fourth of the necessary patents for Long Term Evolution, or LTE.

Patent wars
In August, Google (Nasdaq: GOOG  ) paid $12.5 billion (a 63% premium over the share price at the time) for Motorola Mobility (NYSE: MMI  ) , mainly -- it is widely assumed -- for its cache of 17,000-plus patents. That's a lot of money, and Google perhaps paid so much just to ensure it didn't lose out in yet another patent treasure hunt.

Google was skunked in July when Ericsson joined Apple, Microsoft, Research in Motion, EMC, and Sony, in a consortium that ended up paying $4.5 billion for Nortel Networks collection of more than 6,000 patents.

That brings Ericsson's patent treasure chest to over 27,000, even after it transferred a number of patents to Sony last month when their Sony Ericsson joint venture dissolved.

Vestberg called that a "selective" sale of unnecessary intellectual property, but don't come shopping for intellectual property at Ericsson, he implied. "We are not into selling patents. We want to get the recurrent revenue and we want to sit on them."

Those patents have become a major source of revenue for the company, producing over $700 million in 2010, more than double what they earned in 2006. And Ericsson wants to take advantage of those patents it holds that go beyond mobile wireless technology. It also owns the largest group of WiFi patents.

Intellectual property values
Ericsson has warned that its fourth-quarter bottom line will be hit by the current economic upheaval. Mobile phone companies will probably delay making major infrastructure purchasing decisions until the global environment settles down. But the company is not worrying unduly. After all, it's sitting on quite a nice hedge fund of intellectual property that will see it through the winter.

I like Ericsson and am going to give it a thumbs-up in CAPS. Besides its collection of patents, the company has made a profit since 2004; it has a trailing-12-month P/E of 14, a forward P/E of 10.2, and a projected dividend yield of 2.6%.

Keep track of this promising company by putting Ericsson on My Watchlist.

Fool contributor Dan Radovsky has no financial interest in the above-mentioned companies. The Motley Fool owns shares of Microsoft, Apple, EMC, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft and Apple. 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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