Wireless-technology developer and Motley Fool Stock Advisor recommendation InterDigital Communications (NASDAQ:IDCC) is pushing the send button to deliver its second-quarter earnings on Wednesday. Let's tap this wire to see what kind of sound it makes.

What analysts say:

  • Buy, sell, or waffle? Of the five analysts tracking InterDigital, four of them rate the stock a buy and one analyst recommends selling. In our Motley Fool CAPS investor database, 616 of our 60,000 total users have rated the stock, and overall, it gets a big thumbs-up, with a five-star rating, the highest possible.
  • Revenue. On average, analysts look for InterDigital to report $52 million in revenue this quarter, way below the $297 million last year, but that number was inflated with a one-time gain.
  • Earnings. The average analyst expectations vary wildly but average out to a $0.01-per-share loss for the quarter.

What management says:
While significant one-time settlements have anchored the bulk of InterDigital's past revenue, the company is keen to point out the significance of ongoing royalties from the likes of Sony Ericsson (a joint venture between Sony (NYSE:SNE) and Ericsson (NASDAQ:ERIC)) and Panasonic. While recurring royalties amounted to $57.5 million of the total $67.8 million in revenue last quarter, some significant disputes are still outstanding, such as one with Samsung. Because of these pending disputes, Chief Financial Officer Richard Fagan says that "we also currently expect that our patent arbitration and litigation expenses in second quarter 2007 will be above the $7.2 million (excluding an insurance recovery) experienced in first quarter 2007."

What management does:
Because of these significant one-time settlements over the past few years -- most notably a $253 million settlement with Nokia (NYSE:NOK) in the second quarter of 2006 -- margins at InterDigital have been all over the map. As ongoing royalties start to make up a larger portion of revenue, though, this should give the business more stability in terms of income and margins. 

Margins

12/05

03/06

06/06

09/06

12/06

03/07

Gross

69.7%

73.1%

88.4%

89.2% 

89.4%

88.7%

Operating

12.1%

21.9%

66.9%

68.7%

70.0%

68.5%

Net

33.5%

38.2%

53.7%

54.8%

46.9%

46.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Outside of the legal battles over license fees, InterDigital is putting significant resources into its ASIC product, for which it expects to have engineering samples out late this summer. When it hits the market, InterDigital will be taking on an elite group of chipmakers led by Qualcomm (NASDAQ:QCOM), Texas Instruments (NYSE:TXN), and Broadcom (NASDAQ:BRCM) for a slice of the wireless ASIC business. Progress on this front, as well as royalty reports from licensees, will be key indicators of the company's fundamental health.

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Fool contributor Dave Mock remembers little from recurring dreams, let alone one-time dreams. He owns shares of Qualcomm. Dave is the author of The Qualcomm Equation. The Fool's disclosure policy can't help stomping in small puddles.