Wireless Industry Analyst

So far, I have presented an argument for why Interdigital stands to gain from the iPhone. Early this fall, the company signed a 7-year licensing agreement with Apple. Here is my interpretation of the license –

• The license is retro-active to the day one of the iPhone. This implies that Apple is also paying for 2G technology licensing. So, the $2 million increase in its guidance around September (which analysts speculated was due to the Apple deal) was from licensing 2G technology alone.
• Interdigital has traditionally used the flat-licensing fee model. This has perhaps led analysts to interpolate the $2 million. They now speculate that the company’s earnings per quarter from Apple will be capped at $2 million thus yielding $56 million over the 7-years of the license agreement. Fair enough! But the catch is that with the 3G iPhone, Interdigital not only gets a flat licensing fee (per its IP licensing model) but also makes a PER UNIT ROYALTY for every Infineon platform sold. Besides, the licensing fee for 3G is also likely to be higher as it encompasses both 2G and 3G IP.
• Here are some rudimentary calculations I came up with. If Apple gets 1% market share and sells one 3G iPhone for two 2G iPhones it sells in 2008, then at $2 per handset, Interdigital can make $8 million for the year just out of handset sales. This number can only increase with the 3G sales looking to exponentially increase in 2009 and 2010. So, for now, it is hard for me to believe that the Apple deal is worth only $56 million for Interdigital.

Well, that is my speculation! I will closely watch the company’s quarterly numbers and of course, the release of the next iPhone to see if my analysis is right.