A little while ago, NVIDIA (NVDA +0.99%) made it clear to the industry that it wanted to monetize its graphics patent war chest. This has led some to suggest that Advanced Micro Devices (AMD +2.00%), the other major vendor of high-performance standalone graphics, could potentially follow suit.
Indeed, on Twitter, Justin Jaynes made a very interesting point in response to my claim that Samsung (NASDAQOTH: SSNLF) could simply poach graphics talent rather than buy the entire company -- he said that while Samsung could poach engineers, it cannot poach patents.
To that end, I decided to do some digging to try to get a sense of the relative value of AMD's graphics patent portfolio relative to that of other players in the industry.
Here is what NVIDIA says
At an investor presentation this year, NVIDIA shared the following slide:
Source: NVIDIA
NVIDIA claims that it has over 600 "fundamental graphics patents" while its peers tend to have far fewer. Interestingly enough, it appears that if Samsung were to acquire AMD (as some have suggested), this would approximately double its "fundamental graphics patent" portfolio. Still smaller than NVIDIA, but this might, as has been suggested, help it better defend against NVIDIA's patent lawsuit.
What would Samsung have to pay if it wanted those patents?
If Samsung were to outright buy AMD today for, say, a 50% premium to the current market capitalization, this would imply a purchase price of $3 billion. After factoring in the net debt position, Samsung would wind up paying a tad over $4 billion.
In that case, would it make financial sense for Samsung to pick up AMD just for its graphics patents?
Licensing NVIDIA patents might be cheaper
You might recall that Intel wound up paying NVIDIA $1.5 billion over the course of six years as part of what is essentially a cross-licensing agreement (to read more about the Intel-NVIDIA deal, I recommend checking out the AnandTech article here).
At any rate, the deal between NVIDIA and Intel seemed to essentially boil down to Intel needing access to NVIDIA graphics patents in order to continue to build its own graphics processors into its PC chips.
My guess is that if Samsung has to, it could simply license NVIDIA's patent portfolio for significantly less than it would need to pay to buy AMD. Intel is paying NVIDIA $264 million per year in a deal worth $1.5 billion. Even if Samsung had to pay NVIDIA the same annual rate, it makes sense to just license the patents.
It will be interesting to see how the NVIDIA-Samsung situation plays out
This whole discussion has come about because NVIDIA recently sued Samsung, claiming that the chips Samsung includes in its phones (which usually have Qualcomm or ARM designed graphics processors) infringe upon NVIDIA's fundamental patents.
As per the slide above, NVIDIA says the ITC hearing with respect to this case will happen in late June and that a decision is set to come in early October. I am very interested to see how this all plays out and what NVIDIA's patent portfolio is deemed to be "worth." Not only is this interesting to NVIDIA shareholders, it could help establish the value of AMD's graphics-related patent portfolio as well.
