InterDigital NASDAQ: IDCC executives outlined the company’s licensing model, growth targets and patent-enforcement strategy during an appearance at the J.P. Morgan TMC conference, emphasizing the company’s role in wireless, video compression and artificial intelligence research.
Liren Chen, InterDigital’s CEO and president, said the company was founded in 1972 and focuses on “foundational research” in wireless, video compression and artificial intelligence. He said InterDigital develops technology, contributes it to open standards and monetizes its patent portfolio through licensing agreements. Revenue from licensing is then reinvested into research and development, he said.
Chen said InterDigital has licensed eight of the top 10 smartphone vendors globally, including Apple, Samsung, Xiaomi, Oppo, Vivo, Honor and Lenovo, and has about 85% of the smartphone industry under license. He added that the company also licenses technology to consumer electronics vendors, television makers, PC makers and, increasingly, the connected-car industry.
Standards Role and Patent Portfolio
Chen described InterDigital’s business as beginning with innovation and extending through participation in standards-setting organizations, including 3GPP for cellular technology, IEEE for Wi-Fi and MPEG for video. He said InterDigital engineers participate in and often lead standard-development work, with more than 110 leadership roles across standards organizations.
In 3GPP, which defines 5G and is expected to define 6G, Chen said InterDigital is one of three companies globally, and the only U.S. company, with more than one chair among the organization’s 15 working groups. He said the company has two chair roles in 3GPP.
Chen said InterDigital’s technology can become part of standards when the company demonstrates to industry peers that its solution is faster, more efficient, more reliable or offers lower delays than alternatives. If adopted into a standard, the patented technology can be used across billions of devices, creating licensing opportunities.
ARR Target and Growth Areas
Rich Brezski, InterDigital’s executive vice president, chief financial officer and treasurer, said the company is targeting “$1 billion or more” in annual recurring revenue by the end of the decade. He said InterDigital is currently at about $560 million in ARR, up from roughly $400 million two years ago.
Brezski said the company’s smartphone ARR goal is $500 million, and InterDigital is “almost there now,” following a record level of smartphone ARR in the first quarter of this year. He said consumer electronics and IoT represent $200 million of the company’s $1 billion ARR target.
The largest incremental opportunity, Brezski said, is video services, cloud and content. InterDigital’s goal is to generate $300 million or more of ARR from video services by 2030, though he said the company is currently at zero in that category. He noted that the technology has already been developed and is used by major subscription and advertising video-on-demand models, and that the opportunity now is “getting paid for that use.”
6G, AI and Connected Devices
Chen said InterDigital engineers have been working on 6G for several years, with the standard expected to be finalized by 2029 and broader adoption expected around 2030. He identified several expected pillars of 6G, including native AI, integrated sensing and communication, and non-terrestrial networks that combine cellular and satellite communications.
Chen said future 6G devices are expected to continue supporting older technologies such as 4G and 5G, similar to how today’s 5G phones also support prior generations. From a licensing perspective, he said that creates opportunities to license multi-generation technology.
On connected devices, Chen said InterDigital’s technology is increasingly relevant as more products become wirelessly connected and video-driven. He cited potential use cases including humanoid robots, industrial applications, smart agriculture, smart manufacturing, satellite connectivity and autonomous vehicles.
Chen also discussed AI-based video compression and said InterDigital acquired London-based startup Deep Render, which has worked on software to compress video signals using AI. He said the current technology has too much complexity and remains proprietary, but InterDigital is working to simplify it and potentially contribute aspects to next-generation video codec standards. He cautioned that success is not guaranteed.
Chen said InterDigital is also researching wireless networks designed for AI-driven traffic patterns, including more uplink traffic, and machine-focused video codecs for applications such as autonomous driving, where video is processed by computer systems rather than human viewers.
Patent Enforcement and Streaming Litigation
Chen said InterDigital typically negotiates licensing agreements over lengthy periods, using engineers, patent attorneys and sometimes outside counsel to explain its technology contributions and patent coverage. He said contract terms are generally around five years, which the company views as a balance between long-term licensing and changing market volumes.
Regarding streaming, Chen said InterDigital has negotiated with major players for multiple years but has not yet reached agreements with some companies. He said the company filed a multi-jurisdictional patent enforcement action against Disney in February of last year after failing to agree on patent value. He said five patents have gone to trial so far, two in Brazil and three in Germany, and InterDigital has won in all decided cases, with courts ordering preliminary injunctions or injunctions.
Chen said additional patents are coming to trial in Germany, the Unified Patent Court in Europe and the United States, where trials are currently scheduled for February of next year. He said litigation is not the company’s end goal but is part of its effort to secure licensing agreements that reflect the value of its portfolio.
On Amazon, Chen said the situation is different because Amazon sued InterDigital first before a small device-side licensing deal expired. He said InterDigital countersued in November of last year, and that the Amazon matter is behind the Disney litigation in timing.
Cash Flow and Capital Returns
Brezski said InterDigital’s licensing revenue often comes with “basically 100% gross margin” because the underlying research investments were made years earlier. As a result, he said revenue growth can drive higher profit margin growth because there is generally no additional cost when the company licenses technology already in use.
Brezski said cash is a strategic asset for InterDigital, particularly because the company sometimes needs to enforce its rights against large companies. He said InterDigital has returned about $800 million to shareholders over the last five years while maintaining a strong balance sheet.
Chen closed by saying InterDigital remains “very excited” about its opportunities and believes its value to the industry has been demonstrated repeatedly.
About InterDigital NASDAQ: IDCC
InterDigital, Inc is a mobile and video technology research and development company that designs and licenses wireless communications and video compression innovations. Its patent portfolio encompasses key standards across 3G, 4G LTE and 5G wireless networks, as well as video and multimedia technologies. By focusing on fundamental technology creation rather than device manufacturing, InterDigital delivers core intellectual property to smartphone manufacturers, chipset vendors and telecommunications operators worldwide.
The company's principal services include patent licensing, technology evaluation and consulting.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider InterDigital, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and InterDigital wasn't on the list.
While InterDigital currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
With the proliferation of data centers and electric vehicles, the electric grid will only get more strained. Download this report to learn how energy stocks can play a role in your portfolio as the global demand for energy continues to grow.
Get This Free Report
