WIN is now even cheaper vs IDCC IDCC is now trading at 20x estimates of $1.72, WIN trading at 8x. WIN has got to start attracting attention given the pall that has been cast over IDCC.
FYI, below are some highlights from Davenport' s report out on the IDCC debacle.
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InterDigital, Inc. (IDCC-NASDAQ-US$36.74)
Davenport & Co. Reseach
Ends Sale Process As No Bid for Entire Company Emerges
IDCC announced the conclusion of its strategic review process after receiving no
bids for the entire company. No single company had strategic need for the entire
asset and consortiums, which were seen as a viable alternative to a single buyer, did
not materialize because of competitive dynamics. IDCC did receive interest in smaller
portions of its patent portfolio and, as a result, plans to pursue outright sales or
licensing partnerships of patents it considers non-core to its terminal unit licensing
business.
Outcome of Sale Process Validates Our Cautious Stance on IDCC
During the sale process we believed there were three main encumbrances that
limited the value of IDCC’s portfolio- 1) the 3G patents are heavily licensed to 50% of
the market, 2) more than half the patents are declared essential making them subject
to FRAND licensing commitments, and 3) the 3G patents have not fared well in
litigation as evidenced in the Nokia ITC case. While the sale of non-core assets could
be an attractive way for IDCC to realize value from small portions of its patent
portfolio, we remained concerned that the core licensing business has lost
momentum from the sale process and will require costly, drawn-out litigation in order
to get new licenses in place.
License Expirations Represent Risk in 2012 and 2013
Along with ending the sale process, IDCC announced preliminary 4Q11 results with
revenues in-line and EPS
.05 higher than our estimate on lower operating
expenses. While the results show the core business remained in-tact during the sale
process, the outlook faces significant risk from key license expirations over the next
12-24 months. The Samsung 3G license (35% of revs) expires at the end of 2012
and is followed the RIM 3G license (15% of revs) at the end of 2013. We remain
cautious on these renewals given the expiration and non-renewal of the LG
Electronics license at the end of 2010.
Maintain Neutral Rating as Risk-Reward Remains Unattractive
We believe the valuation of IDCC shares has decreased as a result of the sale
process and outcome. We have been valuing the core business in the low $30s
based on a discounted cash flow analysis, which assumes IDCC is able to renew
expiring licensing agreements at comparable royalty rates. However, the risk
associated with renewals and signing new licensees has increased and we believe
litigation expenses will need to move higher as a result.