Thursday, December 09, 2004
[ANALYST REPORT] Scot Robertson (Stanford Group) comments on Option NV license
· Yesterday InterDigital announced that the company has entered into a worldwide, non-exclusive, royalty-bearing patent license agreement with Option NV, a European provider of 2G, 3G and 802 technology products for wireless connectivity solutions.
· The patent license agreement covers the sale of terminal units and infrastructure compliant with all Second Generation (2G and 2.5G) and Third Generation (3G) cellular and 802 standards.
· With a revenue run-rate of approximately 100 million Euros this year (2004), and an estimated run-rate of 125 million Euros next year (2005), of which roughly 90% is applicable to IDCC patents, we believe Option will be a decent sized customer for IDCC.
· Factoring 90% of 125 million Euros in 2005, and then converting to US dollars, we arrive at roughly $150 million using present currency rates. Assuming a 1% royalty rate, we arrive at an estimated $1.5 million of royalty revenue due to IDCC in 2005.
· While we are leaving our current model unchanged, for exercise purposes, the addition of $1.5 million to the top-line could add anywhere from $0.01-$0.02 to bottom line earnings (certainly not a dramatic affect, but just another brick in the licensee wall).
· Importantly, IDCC could see an added revenue spike in the December quarter via a royalty revenue “true-up” for past infringement from Option (for the first 3 quarters of fiscal 2004).
· Although all or part of past infringement claims may have been relinquished by IDCC as part of the forward licensing agreement, with approximately 71 million Euros in revenue YTD, and assuming a 85%-90% applicability rate, and a 1% royalty rate, we believe the December quarter revenue true-up could be any revenue number between zero and just under one million dollars.
· The patent license agreement covers the sale of terminal units and infrastructure compliant with all Second Generation (2G and 2.5G) and Third Generation (3G) cellular and 802 standards.
· With a revenue run-rate of approximately 100 million Euros this year (2004), and an estimated run-rate of 125 million Euros next year (2005), of which roughly 90% is applicable to IDCC patents, we believe Option will be a decent sized customer for IDCC.
· Factoring 90% of 125 million Euros in 2005, and then converting to US dollars, we arrive at roughly $150 million using present currency rates. Assuming a 1% royalty rate, we arrive at an estimated $1.5 million of royalty revenue due to IDCC in 2005.
· While we are leaving our current model unchanged, for exercise purposes, the addition of $1.5 million to the top-line could add anywhere from $0.01-$0.02 to bottom line earnings (certainly not a dramatic affect, but just another brick in the licensee wall).
· Importantly, IDCC could see an added revenue spike in the December quarter via a royalty revenue “true-up” for past infringement from Option (for the first 3 quarters of fiscal 2004).
· Although all or part of past infringement claims may have been relinquished by IDCC as part of the forward licensing agreement, with approximately 71 million Euros in revenue YTD, and assuming a 85%-90% applicability rate, and a 1% royalty rate, we believe the December quarter revenue true-up could be any revenue number between zero and just under one million dollars.
