InterDigital’s 3rd bucket

IDCC makes their money on patents.  In 1Q10 they reported $116M in total revenue, of which $113M came from patent licenses.  That’s 97.5% of revenue from licensing.   In 2009, they spent $64M on R&D and were issued 187 patents.  They have roughly 1200 patents in total.

And they’ve been doing well recently, signing new licensing agreements (including an iPad agreement), shedding poor performing units and generally increasing profitability.  Now they have cash.  Lots of cash.  $480 million of it.

What are they going to do with it?… Here’s what Bill Merritt, their CEO, said about their cash position on the latest earnings call on April 29th.

“We think of cash in terms of three buckets. The first bucket is the cash we maintain on the balance sheet for financial strength and stability….

The second bucket consists of prepayments of future royalties that are intended to support our normal operations….

The third bucket is discretionary or strategic cash. This is the cash we can use for acquisitions, investments, or capital return, either in the form of a buyback or dividend. How we use this bucket of cash over time can vary, but the objective is always the same, to generate the highest value for our shareholders.”

He then goes on to describe the environment for acquisitions and what they’re looking for.

“We are currently seeing potential opportunities to generate even greater value through selective acquisitions of patent portfolios, as well as investment in or acquisition of smaller, technically-deep businesses with assets that help drive our road map such as our recent investment in Acela Technologies. In both categories, there is a lot on the market right now, with some of the patent portfolios being of possible high value”

Food for thought….


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