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My Favorite CEO Comments from the Prepared Remarks in the Last Conference Callexcerpts from Bill Merritt (CEO)....
The 3G-handset market, which is driving our revenue, is expected to grow by more than 20% per year over the next four years. We also have the opportunity to double our penetration into that market with today having about 50% of the market under license but working to get 100% coverage in that market. The combination of those two factors alone bode very well for our long-term revenue and cash flow opportunities.
With regard to adding new licensee we continue to have productive discussions with major players as well as others in the market. Our balance sheet allows us to be patient and creative. Our R&D initiatives allow us to bring more elements of value to the discussions. And our experience in these all allows us to be confident that we will get these deals done on terms that will drive the value of the business and deliver value to our customers.
That confidence extends to our opportunity with Nokia. We continue to have dialog with them on how to resolve the outstanding licensing issue. We would certainly hope that the parties can arrive at a resolution that makes commercial and business sense outside the legal process. That said, we continue to believe we should have won at the ITC. We also believe we have a very strong case on appeal with argument now set for December 9th, 2010 (note: now moved to Jan 13th). So while we prefer a negotiated solution, we’re also comfortable continuing with the legal process, which is now moving towards a very key milestone.
So in summary, our core handset licensing business is very strong. We also believe there are good growth prospects in adjacent markets, where our inventions are being used, and those are large and growing markets. For example the Machine-to-Machine state, where we already have good licensing penetration is expected to grow dramatically. The infrastructure market is over $40 billion per year. We also see our inventions being deployed in operating systems in middleware. All these markets are very attractive and can largely be addressed using our current patents and patent pipeline.
With that said, we continue to view this part of our business as a hardest operation. So as we move into 2011, we will evaluate our abilities further drive revenue, based on the level of customer interest. Moving to our R&D initiatives, we continue to see very good opportunities for the suite of technologies we are creating to deal with the emerging bandwidth crunch. And beginning two years ago, we were a lone voice on this topic. Today, operators and consumers alike are experiencing the issue daily. That creates a great opportunity for us. For example, we’ve recently demonstrated our Machine-to-Machine platform at a European Telecommunications Standards Institute Meetings, our plan was simple. Today just a few million iPhones are burdening in that network with their signaling needs. Think about the impact that billions of additional Machine-to-Machine connections would create. Our solution must have moved that new signaling burden from the core to the edge of the network, through the use of trusted devices or gateways located at the network edge through which a Machine-to-Machine connection can be made. That trusted device could be a box at the edge of the network of femtocell in your home or your own mobile phone. Industry participants actually were very impressed with our solution and see it as a critical component in driving widespread adoption of Machine-to-Machine technology. The success of this initiative is meaningful on a number of ways. First, it is evidence of InterDigital’s continuing leadership role into designing the wireless networks of the future and our ability to bring significant value for the wireless industry. Second, if this initiative is successful, we believe that number of Machine-to-Machine connections will grow significantly, which bodes well for our terminal unit licensing business, which Machine-to-Machine devices will use our inventions. We are also seeing success with our other R&D initiatives. Indeed our larger vision of a network of networks, but all of those connections functioning intelligently and transparently is starting to materialize. For example, we were happy to see the FCC open up television wide space for use by wireless networks. Doing so, can help elevate the bandwidth crunch, but require some significant technological advances, which were already on our roadmap. We also see concepts like bandwidth aggregation, segregation and handoff becoming important topics in standards bodies. Our experience with these new concepts and our reputation in the standards bodies positions us well to have some of our important inventions adopted, which can further strengthen and grow our licensing business. All in all the company’s prospects have never been brighter. For that reason, the board took a significant step this week in announcing our intention, to begin paying a regular dividend. The board anticipates announcing this policy this quarter, and mentioned in the earnings release, we anticipate that the level of the dividend will be consistent with recent practice in the tech space. ----------------------------------------------------------------------------------------------------------------------------
When you read these comments from the CEO, it's easy to see all the opportunities for new licenses. One of the great things about the IP business model is that royalties drop straight to the bottom line (less taxes). I could easily foresee earnings of $6-7/share after Nokia signs....and well over $10/share when a major carrier signs. When LTE is ramping in 2011-2013.....earnings could easily approach $20/share. If I were short, I don't think I would ever get any rest knowing that any day I could wake up to a buyout offer or a major license announcement.
JMHO,
NJ
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