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F I N A L V E R S I O N

IDCC - InterDigital Communications Corporation
Preliminary Q4 2004 InterDigital Communications Corporation Earnings Conference Call
Mar. 10. 2005 / 10:00AM ET

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Corporate Participants
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* Janet Point
InterDigital Communications - Senior Director, IR
* Rich Fagan
InterDigital Communications - CFO
* Howard Goldberg
InterDigital Communications - President, CEO

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Conference Call Participants
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* Carter Driscoll
IRG Research - Analyst
* John Bucher
Harris Nesbitt - Analyst
* Amit Kapur
- Analyst
* Tom Carpenter
Hilliard Lyons - Analyst
* Justin Clifford
- Analyst
* Scott Robertson
Stanford Financial Group - Analyst
* Frank Mafaria
- Analyst
* Richard Sherman
- Analyst

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Presentation
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Operator [1]
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At this time I would like to welcome everyone to the fourth quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Ms. Point, you may begin your conference.

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Janet Point, InterDigital Communications - Senior Director, IR [2]
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Thank you Lisa. Good morning everyone and welcome to InterDigital's financial results conference call for the fourth quarter and full year 2004. I am Janet Point, Senior Director of Investor Relations with InterDigital. With me today on the call are Rich Fagan, our Chief Financial Officer and Howard Goldberg, our President and Chief Executive Officer. Before we begin our remarks today I need to remind you that in this call we will be making some forward-looking statements regarding our current beliefs and expectations as to (indiscernible) and NEC's (ph) market position, our first quarter 2005 revenues for patent licensees and General Dynamics, our first-quarter 2005 operating expenses, our booked tax rate and cash tax for the first quarter of 2005. Status of our discussions with the SEC, our position for growth, the addition of customers for our AIM ANTENNA solution, our agreement with General Dynamics, the capabilities of interest in our HSDPA product, the momentum of our licensing program and the Nokia arbitration.

Actual outcomes could differ materially from those expressed in any such forward-looking statements due to a variety of factors, including those mentioned in this call as well as those set forth in the Company's most recent SEC filings and in this morning's press release and related 8-K filings. So I will turn it over to Rich to highlight our financial results, and then Howard will provide an update on what we see in the business.

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Rich Fagan, InterDigital Communications - CFO [3]
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Thank you Janet and good morning to everyone. Well 2004 marked another solid year of financial performance for InterDigital. For the full year 2004 revenues were 103.7 million, which is a solid achievement given the fact that only three quarters of per unit royalties are included in that amount. This you may recall resulted from the transition we made in recording such revenues during 2004. Even with only three quarters of per unit royalties, included in the full year, our recurring patent license royalties of 101.6 million exceeded the 92.9 million in 2003.

In addition, 2003 revenue of 114.6 million included 20.6 million of nonrecurring royalty revenue, primarily associated with Sony Ericsson's license agreement. Our solid year end 131.8 million cash position increased about 26 million over the prior year end, even after using approximately 17 million to repurchase shares in the open market. Furthermore, this position was strengthened early in first quarter 2005 by the receipt of about $28 million from Sony Ericsson and we're also pleased to be able to expand the current share repurchase program by an additional one million shares.

Now let me turn to the fourth-quarter results. We reported revenues of 33.9 million, a 37% increase over 2003. This increase was driven by a 40% jump in recurring royalties to $33 million. This growth was driven by increases in royalties from NEC and Sharp, as well as our expanding group of licensees. Royalties from NEC which accounted for about 41% of total revenue were up $5.6 million due to higher royalties related to its sales of covered 3G infrastructure and handsets, in what is a nascent 3G market that is becoming increasingly competitive.

Going forward our royalties from NEC can and will be affected by the heightened competition and NEC's ability to maintain a strong position in the 3G market. Royalties from Sharp which accounted for about 26% of revenues were up 1.6 million versus fourth-quarter 2003. Sharp continues to enjoy success and growing its business outside Japan and appears to be successfully integrating its 2G and 3G offerings in line with market demand. Sony Ericsson continues to be a solid contributor to recurring royalties, accounting for almost 12% of our revenue in the quarter, up slightly over fourth quarter 2004. We also continue to experience incremental contributions from our expanding base of licensees.

In terms of operating expenses they were up about 37% over fourth-quarter 2003. The increase was driven by higher costs associated with patent licensing arbitration litigation and additional personnel costs related to the long-term incentive compensation program implemented in first half 2004. We recognized a non-cash book tax expense of $3.3 million, primarily related to the nuances of accounting for the utilization of net operating loss carry forwards generated from stock option exercises, which I talked about earlier in the year.

And now looking forward in 2005, in first quarter 2005 we expect royalty revenue from current licensees to be between $30 and $31 million. In addition, we expect to recognize revenue associated with our agreement with General Dynamics in the range of $1.5 to $2.5 million and will account for that on a percentage of completion basis. We anticipate that our first-quarter operating expenses will grow sequentially somewhere in the range of 13% to 17% over the fourth quarter of 2004, due to long-term compensation program expenses, normal wage inflation and investment in marketing, technology and product development in response to expanding market opportunities.

We also project that our book tax rate will approximate 34% to 38% for 2005, and will also include an amount for deferred foreign stores withholding tax expense. And that amount is it will be due in part to -- dependent on the level of per unit royalties we recognize. Now will it emphasize a cash taxes paid in first-quarter 2005 should be minimal.

Before I conclude, I would like to comment on the SEC review that we mentioned in today's press release. As is typical with public companies, the SEC periodically reviews a company's securities filings. As we mentioned in the press release, as part of this normal review two principal items remain relating to the timing of expense recognition of the Company's foreign source withholding taxes and the 10-year amortization period for cost of internally developed patents. As a point of emphasis, these issues deal with interpretations of accounting treatment, and any resolution would have no effect on the Company's cash flow or underlying economics of the business.

This concludes my prepared remarks, and I will now turn the call over to our CEO, Howard Goldberg.

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Howard Goldberg, InterDigital Communications - President, CEO [4]
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Thank you, Rich. Good morning everyone. The fundamentals of InterDigital's business are better than ever, and that's where I'd like to focus my remarks this morning. As Rich noted, 2004 was a year of solid progress on a number of important initiatives. I'll review that progress and spend some time sharing the enthusiastic response that our public technology demonstrations generated recently at the 3G SM show in Cannes, France. InterDigital is better positioned for growth and for value creation now than at any time before. We have greatly strengthened the attractiveness and market relevance of our technology and product solutions. While we are continuing our WCDMA development efforts, we have also broadened and diversified our technology and product solutions beyond 3G air interface technologies. We are actively marketing our technology solutions and based upon customer interactions we are on target.

We are establishing a strong presence as a provider of interference management solutions for the wireless LAN market with our Smart antenna and our radio resource management products. Last fall we signed an agreement with Atmel enabling them to incorporate our AIM ANTENNA solution into their 802.11 ABG products. Our AIM ANTENNA solution combines patented beam steering software and physical antenna designs that enhance the performance of wireless LAN devices. We certainly caught the attention of OEM companies and their suppliers by demonstrating improved performance with our AIM ANTENNA solution at a favorable price performance ratio. We look forward to having more customers to proliferate this exciting technology.

As we go about deepening our expertise in Interference Management solutions, we are adding to our portfolio of technology products in this arena. We have developed and are now marketing a Radio Resource Management Solution, which we call AIM Performware. This software package substantially improves the performance of wireless LAN networks through a dynamic channel allocation and load balancing among the access points and enterprise networks. Our initial marketing efforts are underway, and we are encouraged by the early response of potential customers.

Our UMTS FDD solution continues to progress nicely as the technology is being deployed more widely. We're evolving from our offering of the jointly developed FDD protocol stack with Infineon, and we have successfully expanded the offering in a number of key areas. First among those, I would like to briefly refer to our recently formed relationship with General Dynamics. We signed an agreement with them to deliver a complete FDD platform for the mobile user objective system program for the U.S. military, otherwise commonly referred to as MUOS. The MUOS team includes Lockheed Martin, Boeing and Ericsson among other program partners, and this team will bring commercial 3G technology to our countries' war fighters. This subcontractor relationship with General Dynamics unlocks a new distribution channel for our UMTS offering. It aligns us with world-class suppliers to the U.S. military, and it adds a new revenue stream.

Under the baseline agreement we will deliver standards compliant FDD modem technology and in exchange we will receive 16.5 million over the course of 12 to 18 months, plus 2 million in maintenance fees over a period of 3 years thereafter. A second notable achievement in 3G is our early successful deployment of an industry-leading robust HSDPA solution. HSDPA, which stands for high-speed downlink packet access is an advanced evolution of FDD that affords substantially higher data rates. We have publicly demonstrated a released five standards compliant HSDPA technology solution for mobile terminals which will initially be brought to market as technology blocks, and as a reference design for a coprocessor chipset. This product has scalable input up to category 10, which is 14 Mbps, the highest classification in the standards. Our demo unveiled at the 3G SM Show in February displayed streaming video, dynamically adapting to changing channel conditions. To emulate the users experience with an HSDPA in the (indiscernible) handset we showed 15 separate but concurrent, high-quality, video streaming images. This also illustrated for operators the sizable step up in capacity afforded by HSDPA. An FPGA platform containing our HSDPA technology processed this signal through a PC-connected PC MCIA card. The HSDPA technology will be reduced to an ASIC for the purpose of proving the reference design later this year before release of the final reference design to our customers.

Our team was thrilled with the response to our HSDPA demonstration in Caen. And the engagement by the major operators, equipment manufacturers and near related suppliers was very encouraging. As I speak today our business development teams are very busy conducting follow-up activities. For those of you who plan to attend the CTIA Show in New Orleans next week we invite you to please stop by and see this demonstration at our booth.

All in all, our progress towards integrating our development, product and marketing activities is substantial. And we are gaining momentum in the marketplace. Of course, our licensing business has been growing and generating reliable cash flow for years. During the past year we signed 6 license agreements that either added new companies as licensees or extended existing agreements. Our recent activities cover additional technologies, most notably in the 3G cellular areas, including CTMA 2000 and WCDMA. We also began to build a licensing presence under the IEEE 802 wireless specifications. We are continuing to maintain licensing momentum and to further expand our program.

While I'm discussing our licensing business I am sure that you would like me to comment on the evidentiary hearing relating to the arbitration with Nokia. My comments at this time will be necessarily limited to a restatement of the publicly available information. The hearing was conducted in January 2005 and the tribunal presiding over the Nokia arbitration has notified the parties that it expects to submit an internal draft through (ph) award to the ICC on or before March 31, 2005 which they identified as an approximate date. The ICC has set May 31 of this year as the last date for rendering a final award, and the Company anticipates a decision by the ICC on or before then absent an earlier resolution by the parties. Any final award could be subject to appeal filings on a limited basis and enforcement proceedings by the parties.

In addition to this matter, we continue to commit appropriate resources to the arbitration proceeding with Samsung and the litigation with Lucent. Let me say that the process of vigorously prosecuting and defending the Company's intellectual property is central to the realization of enhanced shareholder value. In the short-term, and we are in the short-term, it is necessary to show our resolve and our confidence in our position by devoting substantial resources to these activities. We are in it to win, and we are unwavering in our commitment to do so.

In the past we have faced similar circumstances on a somewhat lesser scale; with InterDigital's current leadership team we have been able to resolve past challenges and enhance shareholder value. I remain confident of our position and of our strategies. As we examined our overall position, we believe that we are at a very attractive inflection point as a Company. Now we have reached the stage where the monetization of our intellectual property is beginning to be complemented by other revenue streams. This diversification of revenue has been one of the objectives of our sustaining level of strategic investment in technology and in products. It is exciting for us to see the company progress to the point where we can envision more fully realizing that strategy and accelerating the value of the business. I am very proud of the world-class execution of InterDigital's internal team in bringing compelling solutions to the marketplace. We are fortunate to have a strong balance sheet and a committed and active Board of Directors that supports continued technology and product investment as well as share repurchase programs.

I am confident that our position and our ability to execute on our plan will deliver substantial benefits well into the future. Having said all that, I would like to turn the call over to Janet Point before opening the call to questions.

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Janet Point, InterDigital Communications - Senior Director, IR [5]
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All right, Lisa thank you very much, and we would like to open up the call for questions. So if you could repeat the instructions.



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Questions and Answers
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Operator [1]
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(OPERATOR INSTRUCTIONS) Carter Driscoll.

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Carter Driscoll, IRG Research - Analyst [2]
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Good morning. A couple questions, if I may. I realize that you're going to be extremely limited in what you can say about the arbitration decision. Just a couple of clarifications, perhaps. Do you anticipate that the court will notify the parties of what the award amount may be, because I guess I'm what I'm trying to understand is, what is the relevance of the March 31st date in terms of spurring some type of settlement? It seems to be what the arbitration panel has been alluding to that they would like the two of you to get together and possibly work this out by yourselves. So I guess I am trying to understand what that is, and then secondarily just as a follow-up to that in particular, when you talk about what some of the basis for limited appeal might be, could you possibly characterize your interpretation of what they may be?

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Howard Goldberg, InterDigital Communications - President, CEO [3]
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Carter, I'll take your question. The March 31 date we view as an internal date. I believe what they were trying to do, although they don't tell you why they give you specific bits of information was to give us guidelines as to how the decision will work its way through the process. I have no expectations that on or before March 31 when they move it up to the top of the process that we will have any indications what their decision may be at that point in time. Regarding the appeals process, I am not going to try to speak as a lawyer with respect to that. The arbitration was designated as a binding arbitration, and the panel has full powers to reach a decision. And unless they abuse those powers, although there are always rights to file an appeal, the standard for an appeal to be overturned would be along the lines of gross abuse of power or gross misapplication of the law. Their discretion and their ability to interpret the law and the facts will not be something that is subject to review.

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Carter Driscoll, IRG Research - Analyst [4]
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Just very lastly, and I will leave this alone. If you -- if I understand the process correctly this is a recommendation that they are going to make to the court of arbitration at the ICC, and therefore is there some type of interpretation from the higher powers that be, or is the recommendation merely a filing mechanism to allow the parties to have some type of timeline and a thought process? Is there an ability to have this final arbitration from your understanding or the final award recommendation to be altered by some other party that we're not aware of today?

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Howard Goldberg, InterDigital Communications - President, CEO [5]
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Well, I would view it in the nature of a quality assurance process. The tribunal renders the decision, then they pass it through an internal process where there are very experienced people at the top whose principle responsibility is to do nothing but review the decisions of their multiple panels all the time. They know what the standards of conduct are, and they are going to be very careful to make sure that there is a sound footing for the decision and that the decision can withstand any attempt at an appeal.

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Carter Driscoll, IRG Research - Analyst [6]
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So it's like a peer review in like the medical community?

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Howard Goldberg, InterDigital Communications - President, CEO [7]
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It shouldn't be looked at as two parties independently making decisions and then reaching a further point of concurrence. That power rests with the tribunal and the panel at the top is simply going to go through a quality assurance process and make sure that all the t's are crossed and the i's are dotted.

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Carter Driscoll, IRG Research - Analyst [8]
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Thanks for the clarification. Just a couple of very quick ones. Rich, for you in particular, what caused the significant change -- if I recall correctly you had originally anticipated a tax burden of at least on a book basis of somewhere around 1 million to 1.5 million. Was it a higher level of options, or is it just a mechanism of accounting that caused it? That seemed to be the one line item that stands out (multiple speakers) prior guidance?

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Rich Fagan, InterDigital Communications - CFO [9]
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As you may recall, we filed an 8-K and said that we expected it to be higher, but it was really a function of the mechanism that how you calculate it for 2004 and actually the success of the business in terms of bringing additional cash in that was taxable.

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Carter Driscoll, IRG Research - Analyst [10]
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Okay, and then lastly if you talk about the agreement with Atmel, if I understand correctly there was some type of activity on this front ongoing with (indiscernible) prior to your acquisition. Is that correct?

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Howard Goldberg, InterDigital Communications - President, CEO [11]
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You mean between Tantivy as a corporate entity and Atmel prior to the acquisition of assets, yes, that is correct. They had an agreement a couple years ago, and frankly they didn't have the resources, and their technology was not well enough developed for them to have pulled it through at that point in time.

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Carter Driscoll, IRG Research - Analyst [12]
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So it's a combination of your overtaking those assets and contributing to them, so has the relationship materially changed, and have we moved into a preproduction mode? It is still an ongoing agreement where you're going to further explore jointly developing this technology? Could you elucidate just a little bit for us?

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Howard Goldberg, InterDigital Communications - President, CEO [13]
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The nature of the agreement with Atmel has changed considerably versus the Tantivy agreements. We acquired assets and did not exceed to the agreement. So the relationship is new in that sense. As we approach the market with AIM ANTENNA and with AIM Performware we are positioning to be an enabler into the supply chain. That means that we will develop and deliver to our customers fully functional and performing products; our customers will generally have the responsibility for integration. But part of the value added proposition in our relationship is the ability of our organization with our financial wealth and much greater number of resources to aid in the integration process as our customers look to bring product to market. Atmel was very early on in the process of our evolution of AIM ANTENNA, and early in terms of the readiness of the market for that solution. We will be moving much closer, we will be moving into market implementation mode this year, and we hope to see AIM ANTENNA enabled products in the retail chain somewhere in the second to third quarter of this year, with our customers to make that a reality.

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Carter Driscoll, IRG Research - Analyst [14]
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Sounds great and I am sorry just lastly do you actually have a dedicated sales channel for the government segment?

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Howard Goldberg, InterDigital Communications - President, CEO [15]
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We have people that are who have primary responsibilities to work both in procuring and working with our customers, so yes, we do. It is not formalized as a division or anything of that nature, but there are dedicated and semi dedicated resources.

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Operator [16]
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John Bucher.

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John Bucher, Harris Nesbitt - Analyst [17]
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Question for you all. It looks from our vantage point that you've got core reference design initiatives, you've got related software protocol stacks that are available. RF optimization solutions and your license and royalty business, can you just describe where you see going forward growth potential in those areas from a revenue and/or earning standpoint? Then I've got a follow-up.

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Rich Fagan, InterDigital Communications - CFO [18]
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I would like to describe that in terms of markets, and I think at this point it is probably a little bit premature to put out revenue numbers. We are converging two areas with our approach to the market. One is wireless LAN is an explosive market. And we feel that we can improve the performance of enterprise and home based products with the solutions that we are bringing to the market. The other is that we have a core focus area on adapted Interference Management, which we believe is going to be a problem that increases in scope over the years. And the many wireless adaptations we see, not just wireless LAN, the release of these two products are the first products bringing our core competency in managing Interference to the marketplace.

One of our central observations that drove us to the AIM ANTENNA product is that almost everybody loves the idea of the 802.11 type products, the WI-Fi products. And yet there is a lot of failure of the products to meet consumer expectations. They take it home, they open it, they put it in a specific room in their house, and the product doesn't play nearly as widely throughout the house as they expected, or there is near in dead spots and the big box stores, such as Best Buy, Circuit City, they have very, very high return rates for these products. We understand what causes that. It has a very strong underlying relationship to Interference. We understand why the consumers love the idea of those products and its potential, and as a low-cost, add-in solution our AIM products will enable a much more robust environment that meets consumer expectations. Large market, we'll wait to talk about the revenue potential.

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John Bucher, Harris Nesbitt - Analyst [19]
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And as far as some of the optimization solutions Interference management, as well as sophisticated antenna systems for the wide area wireless market, is that something that you expect to evolve as some of the carriers move beyond just getting some of the initial deployment of Next Generation solutions out?

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Howard Goldberg, InterDigital Communications - President, CEO [20]
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Yes, we will look at Wi-Max, we will look at 16, 20, all the different species of 802. And we will see if there is the right type of value added equation from an opportunity cost basis. If it makes sense for us to approach those markets because we believe that there is also a need for these type of solutions in the cellular domain, starting with 2G. And that clearly is a very large market, one that we are familiar with and we've made substantial investment in that area. And it's on our roadmap. So we will sort them down according to the nature of the risk/reward ratio as we go forward to.

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John Bucher, Harris Nesbitt - Analyst [21]
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I don't suppose you would care to just rank order in terms of growth potential, the various items that I mentioned earlier? In terms of growth potential.

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Howard Goldberg, InterDigital Communications - President, CEO [22]
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Being the?

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John Bucher, Harris Nesbitt - Analyst [23]
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Licensing royalties versus both wide area and local area optimization solutions, whether it is Interference Management or sophisticated antennas and then your core reference design, the potential for that to break out.

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Howard Goldberg, InterDigital Communications - President, CEO [24]
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It's hard to rank order. What I would like to say is that I love the industry we are in. I love our positioning. We are right in the heart of probably the most dynamic consumer environment that exists today. And as we look at all those segments they have different scales associated with them, and we are in different places in our evolution, so we have a different base measuring criteria in terms of rate of growth. We feel great about 3G. We are starting to see it roll out. We are starting to see the attractiveness of 3G catch hold. People are starting to imagine what they could do with their HSDPA enabled products. So we believe that that is going to have explosive growth in the future over a billion devices a year. Wireless LAN is going to expand beyond wireless LAN as we know it. All types of consumer devices will be working wirelessly within the house, and enterprise deployment will expand substantially. You know, there is an awful lot of growth everywhere we look. And we think with the right alignment, with our core competencies, continued investment which we've been doing to realize that potential, we're excited about most of them.

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John Bucher, Harris Nesbitt - Analyst [25]
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Last question, do you see any indication that there could be an opportunity for the military to define an operational need for UMTS, and other tactical programs besides MUOS at this point?

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Howard Goldberg, InterDigital Communications - President, CEO [26]
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They already have. There are others ongoing at this time. The military sort of has a patchwork communication program that is different between the various divisions of the military, and involves a whole hodgepodge of different technologies, operating over different spectrum allocations. And they realize that for not only the homeland defense, but going beyond homeland to tactical warfare around the globe that communications is one of the keys to the evolution of the advanced war fighter. So I believe -- and of course, they have over the years moved more and more towards a Cots (ph) emphasis, so I believe it is a wonderful complement to what we're doing and a wonderful opportunity.

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John Bucher, Harris Nesbitt - Analyst [27]
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Thank you, sir.

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Operator [28]
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Amit Kapur (ph).

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Amit Kapur, - Analyst [29]
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Just a couple of quick questions. First with the 3G products sell through starting to ramp around the world are you starting to see more potential 3G licensees come to you and begin negotiations on license agreements? And how do you characterize those discussions?

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Howard Goldberg, InterDigital Communications - President, CEO [30]
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Let's start with the fact that 3G is starting its ramp. I believe that this time for the first time in the last several years when it has been talked about its real and its gaining traction, and no one ever anymore talks about if in the equation. It is when and how much. I don't know, you want to call it an issue or challenge or just a reality perhaps, that we face all the time with licensing just for licensing purposes, unlicensed parties do not come to you typically. We experience that once in a while, but I don't expect that dynamic to change, and the people to walk in the door saying we want to license with you, and we want to speed up the process. It's up there to go out for us to go out there and get the licensees. But I like the way we put our business plan together and the way we are moving forward because as we bring value added technology solutions to prospective partners and we talk to other people on the other side of the house and we are in the doors, and we are looking at the possibility of working with them the more our value proposition on products grows, the more a drive towards an earlier consensual licensing agreement will occur in the future. That is part of our plans is to use the two sides of InterDigital, licensing and products as complements to each other.

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Amit Kapur, - Analyst [31]
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So it's reasonable to assume that some of the increases in OpEx that you guys are planning for, are you becoming more aggressive in targeting potential licensees for 3G?

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Howard Goldberg, InterDigital Communications - President, CEO [32]
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Yes, we step it up every year. And investment in technology, continued heavy investment in technology is part of that aggressiveness. It's an aggressiveness channeled as a value added partner.

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Amit Kapur, - Analyst [33]
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Okay, and just in terms of operating expenses, I guess with this latest round of operating expense increases how should we think of this? Are these kind of step function increases that should plateau soon, or should we look for further increases as your revenue opportunity grows as well?

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Rich Fagan, InterDigital Communications - CFO [34]
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I think it is a little premature to say if it is step function or not because we are experiencing high level of expenses for arbitration litigation matters and things of that nature. So you aren't going to see some variability as those things move up and down. But what we're trying to do with the rest of the business is match it to the opportunities that we see and not get too far ahead of ourselves in that regard. There is growth because we see opportunities.

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Operator [35]
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Tom Carpenter.

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Tom Carpenter, Hilliard Lyons - Analyst [36]
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Good morning, everyone. Rich, it sounds like your guidance to that the SEC just accounting review is very minor. Is that correct?

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Rich Fagan, InterDigital Communications - CFO [37]
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I do not want to speak for SEC or we just tell you what the facts are -- they are issues that don't relate to anything about economics and underlying cash flow of the business in a really interpretations of how you account for things that really have already taken place. We are working our way through that.

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Howard Goldberg, InterDigital Communications - President, CEO [38]
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Tom, to me they are journal entries.

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Tom Carpenter, Hilliard Lyons - Analyst [39]
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Exactly. If we go back in time a couple years, maybe you can refresh my memory, was there just a normal SEC review back in maybe '01 or early '02?

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Rich Fagan, InterDigital Communications - CFO [40]
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The SEC has started has had a practice of periodic reviews, and they have to review companies now once every three years, I believe.

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Tom Carpenter, Hilliard Lyons - Analyst [41]
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Okay.

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Rich Fagan, InterDigital Communications - CFO [42]
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And so, this is just something normal for them that we hit the Q. And you respond to it. Many other companies are going through the same thing.

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Tom Carpenter, Hilliard Lyons - Analyst [43]
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Okay. Absent a settlement with Nokia before the drop dead date of May 31st and it does come down to a ruling, if there is a favorable monetary or recurring royalty ruling in IDC's favor and the other party decides to appeal, would they have to post any type of bond or some type of financial matter in order to appeal?

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Rich Fagan, InterDigital Communications - CFO [44]
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I don't know the answer to that, Tom.

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Tom Carpenter, Hilliard Lyons - Analyst [45]
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Okay. I think the Samsung arbitration is scheduled to begin in June. Is that correct?

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Rich Fagan, InterDigital Communications - CFO [46]
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That's correct.

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Tom Carpenter, Hilliard Lyons - Analyst [47]
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Okay, given that it looks like the Nokia issue will be resolved before then and Samsung is basically claimed all along that we just want Nokia's rate, if Nokia is resolved by that date, which it appears to be the case, will the Samsung issue still go to arbitration, or do you think that could be resolved without all the legal fees?

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Janet Point, InterDigital Communications - Senior Director, IR [48]
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It's Janet. No, that is speculation at this point we've got a schedule set for the evidentiary hearing for Samsung, and if there is an change we will update folks on that but at this point it is still slated for June.

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Tom Carpenter, Hilliard Lyons - Analyst [49]
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Okay. On the general dynamics, we see the revenue recognition increase throughout the year or is it going to be a straight line?

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Rich Fagan, InterDigital Communications - CFO [50]
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No, it would be a function of the activity levels. Obviously the activity levels will go up as the year progresses. So I am not sure, as we speak today, Tom, what the activity levels are. We're actually working our way through updates right now on those activity levels we have deliverables, and I hope to be able to comment more on that in the future.

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Tom Carpenter, Hilliard Lyons - Analyst [51]
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Okay, great. Turning our view overseas to Japan and specifically the Japanese patent office, has there been any movement on the patents related to your 3G agreement with Panasonic?

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Janet Point, InterDigital Communications - Senior Director, IR [52]
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As you know it's something we constantly watch, and unfortunately the Japanese patent office does not move briskly. It is obviously something they would commit resources to, and as I mentioned before, when we talked about it it's not just an InterDigital issue, it is an international issue with the Japanese patent office. Moving slowly through the patent issuance process.

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Tom Carpenter, Hilliard Lyons - Analyst [53]
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So I guess there has not been any movement in the last quarter?

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Janet Point, InterDigital Communications - Senior Director, IR [54]
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There is always movement back and forth on certain things, on how they get challenged, whether they are issued at one level then go to the next level, or whether they go to the high court and next (indiscernible) return to the lower court to be issued, but obviously for us what we look for towards especially as it regards to the Panasonic agreement is if we have something that triggers those financial obligations that we got an obligation to talk about what the materiality and what the revenue and impact would be on us. And so we will disclose it when we have some kind of revenue impact. But at this point we haven't had movement in the patent office in Japan that has given us that opportunity.

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Tom Carpenter, Hilliard Lyons - Analyst [55]
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Okay. I know you guys have put a lot of resources into HSDPA over the last year because you guys have been receiving some favorable press, and also favorable reviews at the trade shows. Can you give us an idea of what some monetization could look like this year or next year, whether it would be some agreements with someone like Infineon or you would actually rolled it into some of your license agreements going forward?

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Rich Fagan, InterDigital Communications - CFO [56]
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Well certainly the ability to roll it into companies who are already licensed is part of the model that I talked about, that is the complement of the value added provider, as well as the licensor or patents. We also see it as an opportunity with respect to unlicensed parties, but at this point in time, Tom, the very early adopters will be within the supply chain, probably at the chipset level. We have a competency and an ability to create advanced technologies that is not typically found in most of the semiconductor companies. There is market pressures towards a strong pull from the carriers. The Vodafone's and the Cingulars of the world are absolutely committed to bringing HSDPA enabled services to market. They are already deploying the infrastructure, the handsets are always the issue, and that is where our solution is focused. So we see a very realistic possibility of working with them and in doing so it would more than likely be a model that would involve some front-end payments, perhaps milestone denominated along with some level of recurring royalties or timebased payments for utilization of the reference design.

We anticipate that this could be the first step in a series of relationships because we aspire to be the preferred provider of advanced technologies and HSDPA will be the first step towards movement of advanced 3G technologies. And we will keep you posted as we are working with these companies when we have announceable events you can be sure that we will put them out there.

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Tom Carpenter, Hilliard Lyons - Analyst [57]
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It sounds like what you're saying with the traction that you're making right now you do expect some movement in 2005 on a monetization front.

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Howard Goldberg, InterDigital Communications - President, CEO [58]
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Our customer segment is now focused on bringing this solution to market. HSDPA has been talked about for a while, and the talk starts generally moves ahead of the commercial realities. They are now meeting up because with the operators demanding that their handset suppliers give them a line of HSDPA enabled handsets that is putting pressure on the OEMs who acquire their solutions in most cases from semiconductor manufacturers. So we're working that part of the supply chain at this time and as HSDPA moves towards an early maturity later in the cycle, there will be more fully integrated OEMs who will look to procure the solution themselves. But we are at the semiconductor level now as a point of focus of our discussions.

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Tom Carpenter, Hilliard Lyons - Analyst [59]
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Okay, great. Good luck between now and May 31st. I know you will be extremely busy.

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Howard Goldberg, InterDigital Communications - President, CEO [60]
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Thanks, Tom.

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Operator [61]
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Justin Clifford.

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Justin Clifford, - Analyst [62]
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Good morning, folks. Can I just ask you with your share repurchase authorization it certainly doesn't look like you have been very active in buying back your stock. The best I can see is that in the third quarter you bought back $17 million worth. Is that correct?

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Rich Fagan, InterDigital Communications - CFO [63]
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We bought a million shares last year and then under the authorization that --.

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Justin Clifford, - Analyst [64]
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In 2004 I am talking about.

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Rich Fagan, InterDigital Communications - CFO [65]
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Yes, we bought one million shares.

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Justin Clifford, - Analyst [66]
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You have now authorized a second million shares is that correct?

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Rich Fagan, InterDigital Communications - CFO [67]
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No, we had also authorized after the conclusion of that million that you're referring to, Justin, the Board authorized another million, and we've been purchasing against that. We have purchased close to a half million shares against that as of today. And then the Board authorized an additional million on top of that. So you can look at it as --.

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Justin Clifford, - Analyst [68]
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But after the third quarter you bought the million that you bought last year in 2004, you bought another 500,000 and you have 1.5 million to go; is that correct?

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Rich Fagan, InterDigital Communications - CFO [69]
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Those are approximate numbers, yes.

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Justin Clifford, - Analyst [70]
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That's all I wanted to know. Thank you.

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Operator [71]
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Scott Robertson.

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Scott Robertson, Stanford Financial Group - Analyst [72]
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Quick question on some of the other licensees that aren't in your top three that I would consider more higher profile, at least from the market perspective. And specifically wondering if you can give color on Research In Motion and then more particularly HTC, both like I said very high-profile in the market and two licensees that I thought would be putting a significant sum into you guys this year, meaning calendar 2005.

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Howard Goldberg, InterDigital Communications - President, CEO [73]
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Let me start with Research In Motion. Then I sort of want to I would like to broaden a little bit. Clearly ODMs in Taiwan are gaining some traction, and there is increasing volumes over there. Research In Motion has made some interesting progress. They are certainly going to move into the 3G device domain. What has been most key for me this year in watching them has been their ability to gain traction overseas and their ability to come up with new slimmer form factors that have the classical BlackBerry feel. We feel that that's an organization on the move. It is not the only one of our licensees that don't get the usual top three type of prominence that we feel are on the move. Just in the last couple days a couple things I noticed, one was that the Sidekick 2 was released to the market. That's going to be taken up by T-Mobile and others. T-Mobile stores on the West Coast people were lined up overnight to get the first Sidekick 2s that were being released. It was truly a phenomena, and it has its own cult following much like the devotees of the BlackBerry device, love their BlackBerry device. We think that that is a licensee that a lot of people haven't really focused on that has some interesting potential. And they are partnered with Sharp.

This morning on Wireless Europe there was an announcement that Toshiba and Vodafone had put together a strategic supplier relationship where Vodafone is going to have an exclusive rights to a line of high-end Toshiba handsets. These will be camera phone equipped and other type of high-end devices. And market those throughout Europe, Japan, Australia and New Zealand. So this represents I think, reading it as you would, a significant expansion in the potential for Toshiba. You know, some licensees go down in market share, some go up. There is a volatility in terms of their approach to the market. But in the overall mix of our licensees we feel very, very positive about the balance and their overall ability to gain increasing market share.

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Scott Robertson, Stanford Financial Group - Analyst [74]
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Any reference to ACC? And the reason I ask that is they've literally doubled their revenue quarter-over-quarter from their September quarter results to their December quarter reported results.

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Howard Goldberg, InterDigital Communications - President, CEO [75]
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Nothing that I could add to the public information that you see.

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Scott Robertson, Stanford Financial Group - Analyst [76]
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Okay. Thank you.

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Operator [77]
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Frank Mafaria (ph).

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Frank Mafaria, - Analyst [78]
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Just a couple of questions really regarding technology. Just a couple of things that have been in the news, for example on UMTS, TDD, IP Wireless has signed up, UT Starcom as a licensee and has been making some noise about signing up additional licensees. If you can kind of line up where your technology sits -- if you compare it to that that would be great, but just to get a sense of where you guys are in the marketplace today. Let me just ask the questions and you can answer them. On the second point then Nortel demonstrated some interesting things about OFDM the other day. OFDM kind of the underlying technology for Wi-Max; again where do you sit in that regard? I think you touched upon that earlier but I just to put it in (inaudible).

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Howard Goldberg, InterDigital Communications - President, CEO [79]
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First with respect to UMTD particularly the IP Wireless and its partners, it's a broadband approach to the market that is going to compete against Wi-Max and a whole host of other different approaches into the marketplace. It is not something that we are trying at this point in time to project our technology. On the opportunity scale it is not one that we see is large enough for us to devote substantial resources and make a subtraction from other primary efforts that enter InterDigital's undertaking at this point in time.

Regarding OFDM, Flash OFDM, or traditional OFDM are elements of our technology elements that or technology that may have use in the marketplace. It comes in through one or two of the 802. standards and it certainly represents some potential. We are working at bringing solutions which would be exemplified by Smart antenna, AIM ANATENNA, AIM Performware into markets we're positioning ourselves into convergence. I don't believe that we are likely to attempt to bring an OFDM base band into the marketplace. But we certainly see the value of adding solutions to platforms. And we are active in the standards where OFDM is a part of those standards.

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Frank Mafaria, - Analyst [80]
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That is helpful and one last question technology related again. A lot of these mesh networks starting to at least get attention in some of the municipalities around the country, does your AIM ANTENNA technology do you believe it has an applicability in those networks, those seem to be pretty hot right now?

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Howard Goldberg, InterDigital Communications - President, CEO [81]
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I really don't know what form of applicability it would have. A peer to peer or mesh networks or any one of the type of networks that have that similarity have been discussed for a long time. They are still a minor portion of the market, and we will continue to look at each emerging market. But right now our priorities for AIM ANTENNA and AIM Performware are to move them through the wireless LAN markets and to move AIM ANTENNA into cellular. We will scale the markets according to the risk/reward and with respect to peer to peer type of networks, I think that there are substantial market risks. The size of the market is very uncertain, and it adds to the particular product risk that would be a part of addressing the market. So short answer, we are not actively looking at that market right now.

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Operator [82]
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Richard Sherman.

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Richard Sherman, - Analyst [83]
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Good morning. Could you summarize the comp plans that you referred to in your release that adversely affected earnings, and could you comment whether these plans were ever presented to the shareholders?

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Rich Fagan, InterDigital Communications - CFO [84]
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The comp plans were implemented first half of last year, Richard. They include -- you may be familiar with the company but prior to last year we had like many other companies we've made extensive use of options, and we've migrated away from use of options as a form of compensation and put in a long-term compensation plan, program, which has components of both restricted stock units and a cash-based elements. So that program was described in a filing our most recent filing a Q. The program has elements that relate to '04, '05 time period for which we have accrued in '04. And then starting 1/1/05 you have overlapping periods. So you have an '05 through '07 period. So in 2005 you have elements of two different periods of the program that get expensed.

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Richard Sherman, - Analyst [85]
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And can you dimensionalize what the amounts have been or what the amounts were for '04?

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Rich Fagan, InterDigital Communications - CFO [86]
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I don't have that at hand, Richard. I will be happy to get back to you with that.

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Richard Sherman, - Analyst [87]
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Okay. Thank you.

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Operator [88]
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Carter Driscoll.

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Carter Driscoll, IRG Research - Analyst [89]
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If you could just follow up on where we stand with the Tantivy and Lucent trial and if that's progressing on plan.

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Janet Point, InterDigital Communications - Senior Director, IR [90]
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The Lucent trial continues to be scheduled for September in Texas, and that is moving along on its own course.

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Carter Driscoll, IRG Research - Analyst [91]
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Now you did have the mediation did occur in the first quarter?

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Janet Point, InterDigital Communications - Senior Director, IR [92]
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There was a court-ordered mediation for January. I'm not quite sure that we've made any updates as to where we are on it, but we are moving along in the whole process.

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Carter Driscoll, IRG Research - Analyst [93]
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Great. Thanks very much.

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Operator [94]
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At this time there are no further questions.

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Janet Point, InterDigital Communications - Senior Director, IR [95]
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Okay, everybody. Thanks very much, and again if you are going to be at CTIA, please swing by our booth, and say hello. We look forward to talking to you. Thanks. Bye-bye.

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Operator [96]
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This concludes today's fourth-quarter financial results conference call. You may now disconnect.





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