Interdigital: A strategic shift

By Vijay Nagarajan, Guest Author

In my introduction to Interdigital (IDCC), I had talked about the company’s past. As we saw, despite a visionary beginning, IDCC is yet to find its place in the wireless world. Instead, it has taken an exclusive IP licensing route making money off lawsuits so far.

A key reason for my historical overview is that people often compare IDCC with Qualcomm, calling it ‘The baby Qualcomm’. Irrespective of the genesis of this comparison, I think it is inappropriate. These companies have chosen different models to get to their respective positions. While one has been successful in pushing an entire standard to catapult itself to a $70 billion market cap, the other has been ruing missed chances and currently remains capped at around $1-1.5 billion. However, this comparison has gained new momentum with IDCC’s recent foray into 3G ASIC business. Essentially, the company is now trying the Qualcomm model, feeding money from the high margin IP licensing business to ASIC development thereby providing a path to sustained long-term growth.

IDCC is targeting 2G-3G chipset markets, especially in the smart-phone and other high-end phone segments. The thought process is fairly straight-forward: High-end phone segment is the only addressable market for IDCC. The company cannot compete with the incumbent chipset vendors in the low-end phone segments, both in terms of performance and cost. Besides, the development cycle will not permit it to target the segment. On the other hand, the high-end phones will boom starting 2009. Besides, this segment demands high-performance modems to obtain maximum data throughputs. IDCC now advertises a chipset solution that has the so-called best-rate category-12 HSDPA receiver. There are issues that the company has to contend with –

• Competition from Qualcomm, TI and others like Broadcom and Freescale
• Demonstration of a fully functional modem capable of working without issues in real-world 3G networks
• Soured relationship due to its bitter legal battles. (e.g. Nokia)

There are factors working in Interdigital’s favor as well –

• Handset vendors are now seeking to diversify their chipset suppliers. Previously, the same chipset would usually be in all phones from a vendor. This situation has changed now.
• Interdigital’s relationship with Infineon has been very friendly. In fact, this relationship has been symbiotic for both companies and is perhaps the key to IDCC’s success. I will go into the details of this relationship in detail in my next piece.
• With the high-end phones, performance will be the key differentiator. This implies that if Interdigital can demonstrate its claims successfully, then the barrier to entry will drop considerably.
• Its reasonable IP position, coupled with its cross-licensing with Infineon, implies a potential for obtaining reasonable margins. In other words, IDCC will be able to competitively price its chip with respect to the big players and even out-price the other newer entrants.

As I have always been maintaining, a sustained growth comes from presence in the semiconductor business. Even if 3G licensing money is enough to keep the investors happy, 4G standards have a much flatter patent play. So, this move towards ASIC is a good one. As we will see in the next article, IDCC has a lot to gain from its relationship with Infineon as it prepares for its chipsets debut.

This segment is a part in the series : Interdigital