Intel and Nvidia Settlement is a Good Reminder for InterDigital Shares

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Last night Intel Corp. announced it will pay graphics chip designer Nvidia $1.5 billion over the next 5 years to license its technology and the right to use that technology in its PC chips as graphics processing becomes increasingly important. While there is no direct correlation to InterDigital, Inc., a company I recommended as part of my Asymmetric Business Model investing theme, the settlement between Intel and Nvidia serves as a reminder that while it may take time for companies with strong IP and patent portfolios to convert prospects to customers, there can be a handsome arrangement when that conversion does happen. I continue to see InterDigital shares as “cheap” relative to the Mobile IP & Licensing peer group with several catalysts ahead. In my view, InterDigital is well positioned for the deployment of 4G LTE and licensee announcements will be positive catalysts for the shares in the coming quarters, much the way 3G WCDMA announcements were. Background While the headlines are talking about the Intel-Nvidia settlement, numerous others are commenting on what Nvidia's deal with ARM Holdings means for the PC industry longer term. Here, however, I am more interested in what the settlement signals for the connected device market on a larger scale. Over the last several quarters, there have been numerous law suits – Apple vs. Nokia, Nokia vs. Apple, Motorola vs. Research in Motion, Kodak vs. Apple and Research in Motion, Apple vs. HTC Corp., and so on. Those legal actions signal not only the growing importance of intellectual property and patents as the connected device market continues to collide with other industries and markets (camera, video, and streaming services as well as other technologies and how they are used in these devices), but the willingness of companies to use their portfolio offensively, as well as defensively. Currently InterDigital has announced only one licensee for its 4G portfolio, however with a number of 4G LTE devices announced at the recently concluded Consumer Electronics Show, including several from Samsung, LG and HTC – all of which are 2G/3G InterDigital licensees – I find the prospects for eventual 4G LTE conversion to be favorable, particularly as Verizon Communications and AT&T Inc., deploy those networks over the coming quarters. That view follows InterDigital's improved IP and patent position in 4G LTE over its 3G WCDMA position as noted by Informa. InterDigital still has to ink agreements for 4G LTE with existing customers, and that includes a recently expired 3G agreement with LG. I suspect InterDigital management is looking to sign a 3G/4G license with LG, which would help not only solidify InterDigital's position in the market place, but also disarm several of the bearish arguments surrounding the company. While timing associated with early wins in a new technology phase can take time, InterDigital's balance sheet offers it the strength to make an optimal licensing deal. As we have seen from past licensing wins at InterDigital, or at the Intel-Nvidia settlement, while these deals may take longer than expected to complete, they tend to be very favorable when executed. Once again, great articles like this are available on the Thematic Investor. Subscribe today!

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