Interdigital Inc. (IDCC, Financial)
InterDigital monetizes intellectual property in the wireless tech space. The Company is not a basic patent portfolio manager or a patent troll, but rather is an inventor of patents with 340 engineers worldwide. IDCC spends significant sums on research & development and files patents on technology that is considered essential for the wireless device industry and in turn, demands licensing revenues. We like this business because:
Our Core Thesis:
- There has been tremendous growth in wireless communication and we expect that to continue. We see an investment in InterDigital like selling pickaxes to goldminers in that you don’t have to pick a winner, just identify the general growth trend.
- They have contracts with the big two – Apple and Samsung (and many more).
- We see future growth opportunities from 5G and Internet of Things, two trends still in their infancy.
- Strong operating leverage: recurring revenue has been increasing at a greater pace than operating expenses.
- Solid balance sheet and a history of wise capital allocation.
IDCC already has 90% of non- Chinese wireless market under contract. Trade discussions between the US and China have created some short-term struggles, but based on IDCC management input, we believe that IDCC will have long- term success signing up Chinese clients. The market is worried about delays with any new contracts being signed by Chinese clients when the US is in the middle of a trade war, but we see this as an opportunity to add to our position at an attractive price, while we wait for what we believe to be the inevitable.
From FPA Capital's 3rd-quarter 2019 shareholder letter.
Also check out:
