Archive for the ‘IDCC’ category

InterDigital (IDCC) – Sometimes, Lucky > Good

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Sometimes in investing, you just get lucky.

Six days ago, I wrote about a window of investment opportunity to go long patent holding companies due to failed patent reform legislation (source). Today, one of the 5 companies I highlighted as “interesting” (a word I use to convey particularly strong conviction), is a top gainer in the market, up ~20%. The reason?

A 10 year licensing deal with Samsung covering 3G, 4G and future wireless products. This deal boosts quarterly recurring revenue from $56MM – which the Company expected in May (source) – to $76MM (source). That’s $80MM / year in additional recurring revenue from Samsung. IDCC’s new recurring revenue estimate is now just north of $300MM / year.

Even at these levels, IDCC continues to be “interesting”.

The Winners of Failed Patent Reform

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Last Wednesday night, patent reform was effectively killed (source). And given upcoming mid-term elections, it is unlikely that efforts will get rebooted anytime soon. This is a significant surprise to many as patent reform had largely been a bipartisan effort and was seen as an easy win for politicians. (I put the word surprise in bold because it is perhaps the single most important word in investing… wherever there is surprise, there is opportunity.)

A natural question follows every surprise: who benefits most?

In this case, the answer is clear: Intellectual Property holding companies. In the short to intermediate term, this news completely eliminates the biggest fear surrounding the sector: political risk. Any investor that believed a significant impairment to future earnings was coming has to completely rethink their position. In the longer term, a failure to enact patent reform implies the IP holding companies are in a significantly stronger political position than the market previously believed (some insight here). And this makes me think any future legislation will have little impact to the patent enforcement / patent licensing business model going forward.

This surprise opens a window of investment opportunity as the market begins to re-rate sector risk. And because lower risk equals higher multiples and higher stock prices, I believe the following companies are positioned to outperform the market over the coming months: