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Tessera Technologies Inc. Message Board

  • techinvestor05 techinvestor05 Jun 2, 2009 11:13 PM Flag

    Opinions please

    Would appreciate the opinions of nukejohn, carlos, tomonthebus and any others who may have a clear understanding of the litigation victory.

    IMO we would have hit 25 this week without todays news, today was just a short breather. Volume still solid, NAS on the rise, S&P crossing over 200DMA, a lot of strength still playing out. I've disagreed somewhat with some of the optimistic projections on this board, but I think this is still a potential double from here, probably by end of year. But to get to 60-80, I need to see how some of the license agreements play out. i.e. MOT signed a worldwide license, which obviously had license and option fees, back payments, etc. built in. As I see it, QCOM would not have to do so if they use AMKR to package their products. Technically QCOM doesn't have to license at all assuming they use a licensed foundry. That would add another layer of complication for them but lets put that aside for now. If they don't license directly from TSRA, then no negotiations, no back payments, no license fees, etc. They also only pay on products sold in the US since they wouldn't be held to a worldwide license through negotiations. With the other defendants, similar issues. If their sales volume doesn't warrant the expense of a license, and all the associated settlement fees, they could use a licensed foundry instead. Good for downstream royalties but eliminates the revenues and upside associated with negotiating a direct license. MOT is large enough that it made sense. I'm curious how others view these license agreements playing out? Thanks.

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    • True and cheers. It is $6M. And yes I would assume it is value of imported products, not what they would otherwise pay TSRA. It does not take into account though that they may have posted a lower bond than what will be necessary.

    • Also billys numbers are incorrect. Freescale posted a 210K bond, which is 3.5% of the value of infringing products over the 60-day review period ($6M, or $3M/month). This equates to $36M annual number, all things being equal. This would be value of the products, not what they would pay TSRA. TSRA typically receives royalties based on pin count or number of electrical connections per device, so trying to figure out what the royalty number might be would be impossible IMO without understanding the number and volume of products involved.

    • If the bond covers only the review period, that would obviously increase my estimates. I assumed it was annual and I bow my head in shame for finding no basis for that. From the ruling:

      "The Commission has determined that the bond for temporary importation during the period of Presidential review (19 U.S.C. § 1337(j)) shall be in the amount of 3.5% of the value of the imported articles that are subject to the order. The Commission’s order was delivered to the President and the United States Trade Representative on the day of its issuance."

      I assume this means during the review period since it states it covers temporary importation, so thank you for pointing this out billy.

    • Forgive my obvious error, 1% of $360M is 3.6M. QCOMs low bond of $5K could be out of begrudgery in not wanting Tessera to benefit from a share price increase by posting a more realistic bond, thus concealing any potential indication of the true value owing or coming down the line to Tessera.

    • Good point Billy.

      Is it 3.5% of annual imports or 3.5% of the value of imports during the period?

      The fact that both QCOM and Freescale promise to true up the number at the end of the 60 days indicates that it is for imports during the 60 days.

      Tech: That would increase your estimates, right?

    • I am thinking that QCOM feels that the review will be in their favor.The most recent legal filings ,if having validity,sound like the legal process and decision was flawed from the outset.As if the ITC and staff based their decision on info that missed the basis for the initial lawsuit,at least that seems to be what QCOM is argueing.SO,the small bond is because they think TSRA has no valid patent claim.

      • 1 Reply to wowilly22
      • The small bond has nothing to do with what they believe, nor the likelihood that the decision will be reversed. It is based strictly on % of sales of infringing products imported into the US. Your logic is like saying that I will only post a one dollar bond for my knock-off phone, after being soundly beaten in court, because I still don't think Apple has a valid patent claim on an iphone. It just doesn't work that way. Presidential reviews almost never result in overturning an ITC decision. QCOM knows they have little more than a prayer in that regard. We are now better than halfway through the review period. There is a reason for the small bond amount, but its not QCOM's decision how much will be posted.

    • My logic pretty closely follows yours. That is essentially my understanding as well.

      All royalties are a qtr out. The question(s) is/are, at what point did QCOM begin using AMKR, what are the volumes, have royalties previously been reported that (either knowingly or unknowingly) include QCOM, are the revenues material, etc. I bring up the "material" term because of the wimpy bond amount and how none of it makes sense to me at this point. Obviously the ITC decision coming down in May, and QCOM stating that they had already transitioned to AMKR, indicates first royalties being reported for qtr-ending Sept. 09 which means no way to get clarity purely by the numbers until October. Thats 4 months out, where in the hell is carlos when I need him.

    • I will answer your second question with a question.

      Any QCOM revenue via AMKR would be reported as royalties in arrears, and therefore one quarter further out, correct?

    • Maybe I'm making a logic jump. Here is my understanding:

      The LEO prohibits the import of new chips. The bond allows them to temporarily continue during the 60 day period. If not vetoed, they must stop. Period.

      The cease and desist covers current inventories. I assume the bond is in play here too, but maybe not.

      The LEO and Cease and Desist, if not vetoed would be in effect as the respondant's continue their District Court battle. That gives them incentive to sign licenses or use licensed subcontractors.

      If they continue to fight and lose in District Court, then TSRA has the chance at monetary damages for past violations.

      Fighting this all the way thru District Court would be foolish. They are barred from importing unlicensed chips and run the risk of penalties.

      Of course, a Veto or a Stay would change the game again.

    • The bond amount doesn't take into account current inventories, does it? The bond as I understand it allows them to continue to import product during the presidential review period. The cease and desist order means they cannot sell existing inventory, and those inventories were not even known by other parties in the action so that is a big question mark.

      So the question is, are QCOM royalties factored into TSRA's raised guidance? Not directly from QCOM because they don't have a license. but did they factor in upside from AKMR, how much would it be, and if not, does it provide for even more upside surprise at next ER?

      The scenario I would like to see is for QCOMs business to grow even larger, AMKR runs out of capacity to meet QCOM needs, so QCOM takes a license or caps sales. Rock-QCOM-hard place. Nice.

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