Semiconductor IP Players: IDCC, Tessera

InterDigital, Inc. (NASDAQ:IDCC) reported a strong second quarter on August 6. Added to the positive news in two major cases, its shares soared to a 52-week high of $28 on July 31. InterDigital is a top 5 beneficiary of the 3G iPhone, as its licensing technology is used not just by Apple but by RIM, Samsung and Nokia.

InterDigital has a seven-year licensing deal with Apple. But apart from this, its Infineon alliance gets it royalties for the Infineon platform in the 3G iPhone. With 3G iPhone sales touching one million on the first weekend alone, the deals have proven to be a wonderful double treat for InterDigital.

Revenue was up 7% y-o-y and 5% q-o-q to $58.7 million. Net income was $5.8 million, or $0.13 per share versus net loss of $4.4 million, or $0.09 per share last year. Adjusted net income was $6.6 million, or $0.13 per share. Analysts expected earnings of $0.12 per share on revenues of $58.52 million.

Recurring patent licensing royalties were $55.9 million, versus $52.6 million in Q207. Technology solution revenue increased to $2.5 million from $0.6 million last year, mainly due to an increase in engineering services provided under the license for the company’s SlimChip 3G modem IP.

Operating expenses increased to $50.9 million mainly due to higher litigation and arbitration expenses. On July 31, in a case against Samsung, the U.S. International Trade Commission (ITC) ruled in InterDigital’s favor that Samsung cannot use the 2006 InterDigital-Nokia deal to avoid paying over $150 million in royalty fees. And in another case against Nokia, the U.S. Court of Appeals reversed a preliminary injunction barring InterDigital from proceeding against Nokia before the ITC.

In the third quarter of 2008, InterDigital expects litigation expenses to decrease by $2.6 million due to the settlement of two patent-infringement cases in the U.K. last month. It is currently trading around $25 against Vijay’s valuation of $75. The 3G iPhone effect has not yet kicked into the revenue numbers.

Tessera Technologies, Inc. (Nasdaq: TSRA), another IP licensing company and a leading miniaturization technology provider, reported a strong second quarter on July 31. Results were driven by greater-than-expected wireless and in-line DRAM demand. Memory content in computing and wireless devices increased 50% y-o-y and is expected to be 55% more in 2008. Earlier coverage is available here and here.

Revenue grew 21% to $56.3 with royalty and licensing fees up 37% at $49.9 million. Net income was $0.84 million or $0.00 per share. Total GAAP expenses were $54.0 million including litigation expenses of $17.2 million, driven primarily by the Amkor arbitration hearing. Adjusted net income was $9.1 million, or $0.18 per share. Analysts expected earnings of $0.31 per share on revenue of $55.3 million.

Samsung recently became Tessera’s second major customer after Toshiba for its OptiML Focus Technology, which is used in camera modules and next generation mobile devices.

For Q3, Tessera expects revenue in the range of $62 million to $64 million. Royalty and licensing fees are expected between $55 million and $57 million. Non-GAAP expenses, excluding litigation, are targeted at $29 million to $30 million. Yesterday, the company announced that CEO Bruce McWilliams will become the new chief strategy officer and vice chairman Henry R. Nothhaft will be the new CEO. The stock is currently trading around $19 with market cap of around $924 million.

Tessera’s key Chip Scale Packaging patent expires in 2010. Between now and then, a lot of royalty will flow into the company’s coffers, but it is still somewhat unclear as to how Tessera plans to preserve its revenue level beyond 2010.

Comments

[…] 8. Tessera Tessera (TSRA) is a great IP licensing company that is bound to benefit from the convergence device movement with its IP for chip packaging that drives electronics miniaturization. Suggested reading: Tessera’s Roll-Up Strategy, stock analysis from Q307, Q407, and Q108. […]

Top 10 Semiconductor Stocks - Sramana Mitra on Strategy Wednesday, August 13, 2008 at 8:51 AM PT