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Executives

Janet Point – Executive Vice President, Communications and Investor Relations

Scott McQuilkin – Chief Financial Officer

William Merritt – President and Chief Executive Officer

Analysts

William Nasgovitz – Heartland Funds.

Michael Ciarmoli – Boenning & Scattergood

Bennett Notman – Davenport

Philip Zera - Algorithm Capital

InterDigital, Inc. (IDCC) Q4 2008 Earnings Call March 3, 2009 10:00 AM ET

Operator

Good day everyone. Welcome to today's InterDigital Fourth quarter 2008 Earnings Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Janet Point. Please go ahead.

Janet Point

All right. Thank you, Jamie. Good morning everyone and welcome to InterDigital’s Fourth Quarter 2008 Earnings Conference Call. With me this morning are Bill Merritt, our President and CEO, and Scott McQuilkin, our Chief Financial Officer. Consistent with last quarter’s call, we will offer some highlights about the quarter and the company and then open up the call for questions.

But before we begin our remarks, I need to remind you that in this call we will be making forward-looking statements regarding our current beliefs, plans, and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from the results and events contemplated by such forward-looking statements. These risks and uncertainties include those set forth in our earnings release published yesterday and those detailed from time-to-time in our other filings with the Securities and Exchange Commission.

These forward-looking statements are made only as of the date today hereof and except as required by law, we undertake no obligation to update or revise any of them whether as a result of new information, future events, or otherwise.

So with that taken care of, I will now turn the call over to Scott.

Scott McQuilkin

Thank you, Janet and good morning to everyone. Our fourth quarter financial results reflect solid performance despite a weak economic environment. Total revenue was $58.7 million in fourth quarter 2008, an increase from $54.9 million in fourth quarter of 2007 and $55.1 million in third quarter 2008.

Net income was $3.8 million or $0.09 per fully diluted share. I’m also pleased to report that in January we signed a 2G and 3G patent license agreement with Samsung that will generate $400 million cash over 18 months.

We received the first installment of $100 million in January and will recognize 2.5 months of revenue in first quarter 2009. Compared to the prior year, our fourth quarter 2008 revenue of $58.7 million reflects a $4.1 million increase in technology solutions revenue and $3.8 million increase in non-recurring revenue.

These increases were partially offset by a $4 million decrease in recurring patent license royalties, which is related to declining royalties from our Japanese licensees. Declining royalties from our Japanese licensees is due to a number of factors including worldwide economic weakness, inventory adjustments, the relative maturity of the 3G market in Japan, and a shift away from subsidization of retail handset prices by operators.

Near term, we expect that our Japanese licensees will continue to face a challenging environment. Although the current economic environment is uncertain, we have structured our royalty stream in a manner to provide significant insulation from market swings. Specifically, licenses with fixed revenue recognition accounted for 43% of our recurring revenue in fourth quarter 2008.

The other major component is unit-based revenue, which depends on quarterly sales by our licensees. The fixed component of our recurring revenue provides stability, which is particularly helpful near term, while the unit-based revenue provides opportunity for growth in revenue from our existing licensees as the 3G market volume expands overtime.

The non-recurring component of our revenue in fourth quarter 2008 was $7.3 million and was primarily associated with a non-refundable prepayment made in a prior period by a licensee that subsequently exited the handset business. Our technology solutions revenue was $5.1 million in fourth quarter 2008, up significantly from $1 million in fourth quarter 2007 and $2 million in third quarter 2008.

Importantly, fourth quarter 2008 technology solutions included a significant increase in unit-based recurring revenue driven by sales of our customer’s products, that contained SlimChip Modem IP.

In first quarter 2009, we expect to report recurring revenues from existing agreements in a range of $69 million to $71 million. We expected increases of nearly $20 million over fourth quarter 2008 recurring revenue, reflects the recognition of 2.5 months of revenue under our new license agreement with Samsung, partly offset by the loss of $1.1 million of fixed revenue amortization from a licensee who exited the handset business.

This range does not include any potential impact from additional new agreements that maybe signed during first quarter 2009 or additional royalties identified in audits that we regularly conduct.

Importantly, first quarter 2009 revenue guidance reflects a positive shift in the composition of our revenue stream during a period of significant uncertainty in the industry handset sales, with the addition of Samsung in first quarter 2009, we expect that the fixed component of our recurring revenue will increase from 43% in fourth quarter 2008 to about 60% in first quarter 2009.

For the same reason, our unit-based royalties from Japanese licensees, which have recently reflected the soft Japanese market will account for a lower percentage of our recurring patent royalties going forward.

In fourth quarter 2008, Sharp and NEC accounted for 14% and 10% respectively of our recurring patent license royalties and technology solution sales. While weak global economic conditions may continue to affect industry handset sales near term, we remain optimistic about the fundamental growth prospects for the 3G handset market, which can drive revenue growth overtime. More importantly, we remain confident in our ability to add major new licensees, which could significantly increase our royalty revenues

With the addition of our new patent license agreement with Samsung, our share of the 3G market that is licensed, increased from about one-third in fourth quarter 2008, to about one-half currently. Clearly, increasing the share further represents a major opportunity to drive revenue growth, earnings, and cash flow in the future.

Turning to the expense side. Fourth quarter 2008 operating expenses totaled $53.9 million. This represents a $3.7 million decrease from fourth quarter 2007. Excluding a $7.8 million charge for arbitration and litigation contingencies in fourth quarter 2007, total operating expenses in fourth quarter 2008 increased by $4.1 million over fourth quarter 2007.

To better understand the trends in our operating expenses we focus on two basic components. Operating expenses other than patent litigation and arbitration costs and patent litigation and arbitration costs. Let me address the fundamental trends for each of these components of our operating expenses in more detail.

First, our operating expenses other than patent litigation and arbitration costs were $52.5 million in fourth quarter 2008. This represents a $13.5 million increase over the fourth quarter 2007 expenses. The increase reflects a $9.4 million adjustment to the accrual for long-term compensation plan, a $2.3 million accrual for a bad debt reserve, and a $1.8 million increase in other expenses, primarily related to development expenses associated with current and future products under our SlimChip program.

Importantly, our SG&A costs other than bad debt and long-term compensation expenses, actually decreased by $0.5 million from fourth quarter 2007. These trends reflect active management of our expenses during a period of significant investment in our business.

Looking forward, we will maintain our focus on controlling discretionary spending and aggressively managing our investment initiatives. Given that we are currently evaluating a number of options to drive value for our business, we are not in a position to provide meaningful expense guidance for first quarter 2009.

The second component of our operating expenses is patent litigation and arbitration costs. These costs total $1.5 million in fourth quarter 2008. This is $17.2 million less than fourth quarter 2007 expenses, which included a $7.8 million charge for arbitration and litigation contingencies. Excluding this charge, fourth quarter 2008 expenses were $9.4 million less than fourth quarter 2007.

The significant decrease in patent litigation and arbitration cost is due primarily to the elimination of ongoing expenses, following the resolution of our UK matters with Nokia, as well as a reduction in cost associated with our ITC proceedings with Samsung and Nokia.

We’re pleased by the significant decrease in our patent litigation and arbitration expense and believe that our investment is supported by the successful completion of a patent license agreement with Samsung, and has positioned us well with respect to our ITC proceeding with Nokia.

Going forward, we will continue to invest when necessary to vigorously defend our strong and well diversified patent portfolio. Therefore we expect that these activities will continue to be an element in the execution of our business and that these expenses will vary from quarter-to-quarter, depending on the level of activity.

Our cash position has remained strong, even during a period of significant investment in our business and stock repurchases. We ended fourth quarter 2008 with a $142 million in cash and short-term investments, representing $3.8 per diluted share. Free cash flow was $45 million for the full year 2008.

Note that these numbers did not include the $100 million payment we received from Samsung in January 2009. In fourth quarter 2008 we completed our $100 million stock repurchase program having purchased a total of $4.8 million or about 10% of our common shares. This reduced our common shares outstanding to $43.3 million at the end of December. On a cumulative basis, we have purchased a total of $22.6 million shares or about a third of our outstanding shares overtime.

We continue to have confidence in our ability to generate value for our shareholders by licensing our significant portfolio of patents, as well as through other investment opportunities, which may include share repurchases. We are currently in the process of evaluating a number of strategic options to drive value for our shareholders, and given our strong cash balances and free cash flow, we are very well positioned to take advantage of the most attractive opportunities.

In summary, our financial position is strong, and we have made significant progress towards our objectives of securing revenue from every 3G device sold, and building value for our shareholders. Now I will turn the call over to Bill.

William Merritt

Thank you and good morning to everyone. As we announced last night, 2008 was a very solid year for the company both from a financial and strategic perspective. As we typically view this time of year, I want to recap the major achievements for the pervious year and compare those achievements with our stated goals. I will also set out the company’s strategy for 2009, so you can know what to measure us against.

As I said many times the value in our licensing business is driven in first by success in completing license agreements with the top five headset manufacturers, and second by our success in securing licenses with Tier-2 and 3 manufacturers. In 2008, we set out aggressive goals for ourselves and we are successful on both fronts.

In November 2008, we resolved our long running 2G and 3G licensing disputes with Samsung culminating in an agreement in which the company will receive $400 million over an 18 months period. This is a strong agreement that is consistent with our long-term strategic plan and provides concrete evidence of the value of our patent portfolio from someone that had the opportunity to thoroughly review it.

With Samsung added as a licensee, 50% of the 3G devices shipped worldwide are now sold under license with InterDigital, another strong indicator of strength of the company’s patent portfolio and licensing program.

In addition to Samsung, we also made very nice progress in 2008 in adding additional companies as patent licensees including ASUSTeK, Pegatron, IWELL and ModeLabs. That progress continued last week when we announced Global Wireless as new licensee. These players have interesting new products and approaches to the market and they will provide incremental revenue to InterDigital overtime.

For 2009, the primary goal with respect to patent licensing business will be to continue to expand our licensee base both with the top five ranks and below. We are well positioned to do so. Our 3G case with Nokia at the ITC is moving forward in what we believe to be a positive manner. The ALJ has refused to complicate the case with the Markman hearing requested by Nokia, accordingly we remain on target for the evidentiary hearing in May 2009 and for an initial ALJ determination in August of this year. Given the strength of our position in the case, I believe that we will either secure a favorable settlement with Nokia, or a favorable decision, either of which will drive using greater value for our shareholders.

Indeed as we have mentioned before and as you saw with the Samsung results, the positive resolution of licensing matters with the top five manufacturers result in dramatic positive changes in our profits. We anticipate the same type of dramatic positive results when we resolve Nokia.

The second goal for 2008 was to continue to invest in technologies that will drive future licensing and product opportunities for the company. As with our patent licensing programs we had a very successful year on this front. We continue to have very good success in having our contributions accepted into the new standards that will define future releases of both 3G technologies as well as LTE. At this point, we believe we had a build a critical mass of inventions necessary to successfully drive the next round of patent licensing for LTE products

We also successfully moved our MIH offering from a laboratory technology to a product ready technology that will enable users to roam easily and seamlessly between a wide variety of wireless networks. At the Mobile World Congress in Barcelona two weeks ago, we demonstrated the product in connection with British Telecom using an off-the-shelf handset and server adapted with our MIH solution.

For 2009, continued investment in new technology inventions will again be key. Indeed, given our strong financial position we intend to expand the effort beyond LTE and even beyond digital baseband to other wireless technologies components as well as applications and services that will help shape the new horizon for wireless users. We have the financial resources to make this investment, more important we have the talent to identify new users for wireless, see the problems that need to be solved to deliver those services, and to create the innovative solutions that can make that future a reality.

Moving to the modem product side, for 2008 we wanted to generate increased revenue contribution by year-end from our SlimChip Modem IP sales and by sales of our baseband IC’s. With regard to our IP sales, we hit that goal as our technology licensees began to ship in meaningful volume 3G ASICs using our technology. We expect that trend to continue in 2009 and for technology solution revenues to continue to increase accordingly.

In 2008, we also made tremendous progress in bringing our SlimChip solution to market including signing some initial agreements for our baseband solution. However, as we indicated in our last quarter conference call, the landscape in the baseband market has been evolving very rapidly. Those changes necessitated a need for a strategic review of the options in that business including increase in the scale of our business through acquisition or partnership, selling the business or shutting it down.

One of our goals for this year is to effectively and quickly move through that process. As for the sale option and we do have interested buyers and are continuing to have an meaningful dialog on that front

With regard to building scale, we also continue to pursue options there. During this process we have also looked beyond simply to further investment in the digital baseband business or its sale or discontinuation to other areas where the company can make investments and see a good return. Indeed I think it is an important reminder that a key motivator for pursuing the modem program was that it was one possible means of adding value to an already very healthy business. It was by no means the exclusive one.

In that regard we see a number of opportunities to invest our resources and drive value. For example, as I mentioned above, we are already adding resources to our core technology and advanced product development programs to create higher value through an expansion of the licensing business into new markets.

We are also looking at new products outside the baseband market including the introduction of our MIH product into the market. Indeed in a time when other companies are financially challenged and that cannot invest in future technologies, InterDigtal’s ability to invest in new technologies and products creates the opportunity for us to leap ahead of others, which brings me to my last topic which is M&A.

In 2008, we set out modest goals for M&A as we focused most of our efforts on driving the patent licensing program and bringing our SlimChip products to market. In 2009, given that the company’s strong cash flow, we believe M&A properly executed on, can bring us technologies that not only complement our position, but also open new markets. Indeed there are many small companies that cannot secure financing today despite having very valuable initiatives underway.

With our financial strength, we will seek to capitalize on those opportunities and drive even further value for our shareholders. Thank you again for your support. It was a great year in 2008 and we expect even more in 2009. With that let me open it up for questions.

Question-and-Answer Session

Janet Point

All right. Jamie you can give the instructions for asking questions.

Operator

Thank you. (Operator Instructions) We will go first to Bill Nasgovitz with Heartland Funds.

William Nasgovitz – Heartland Funds

This bear market must be taking its toll. I am first oh my god! Well, good morning to everyone. What I came on late, so I might have missed this is, what’s your share, 3G share today is and in the past you’ve made some very - well, you’ve had a goal of pretty aggressive goal, would you like to restate that or amplify on that?

William Merritt

Sure I mean the goal of the company is to secure revenue on every 3G device sold. Today we are at approximately 50% of that market.

William Nasgovitz – Heartland Funds

50%. And Nokia would represent what percent?

William Merritt

They are probably about 30% in that, maybe a little bit below that.

William Nasgovitz – Heartland Funds

Okay, well good luck in those efforts.

William Merritt

Okay. Thank you.

William Nasgovitz – Heartland Funds

We like the trend.

Janet Point

Good luck in the market.

William Nasgovitz – Heartland Funds

Yeah, thank you very much.

Operator

We will go next to Michael Ciarmoli with Boenning & Scattergood

Michael Ciarmoli – Boenning & Scattergood

Hi guys, thanks for taking my question. Just on some of your bigger licensees; NEC, Sharp, do you have any idea how far those two revenue sources will trend lower or what the magnitude will be in 2009. I guess they did NEC about $27 million, Sharp about $36 million, can you give us any sense as to where those slide down to?

Scott McQuilkin

Mike, it’s Scott McQuilkin. As you know, it’s pretty difficult to project what’s going to happen with the economy in 2009. Clearly, if you look at the numbers historically, the fourth quarter reflects a pretty significant decrease in those numbers and I think the general view in the industry is there was a pretty significant inventory adjustment that took place. And there is a pretty weak outlook generally. So, I think it’s hard to put a number on it, but our view as I said in my comments is that it’s going to be a challenging year for everybody and probably for the Japanese licensees in particular, just because of their market tends to be more mature and you have this issue of the subsidization by the operators of the pricing, being a headwind that’s fairly unique to that market.

Michael Ciarmoli – Boenning & Scattergood

Okay.

Scott McQuilkin

I think, we are approaching that market as, with a conservative viewpoint, but at the same time I think the very key point is that our - historically, that was a very sensitive number in terms of our quarter-to-quarter revenue going forward with the addition of Samsung, it’s a much smaller percentage.

Michael Ciarmoli – Boenning & Scattergood

Okay, can you give us a sense are there any other customers, royalty paying customers now, that will be paid up or are they coming to the end of the royalty paying streams that are impacting ’09 revenues or is it merely just the overall weakness in the kind of global handset market?

Scott McQuilkin

Yeah, we do have people that, come in and out I mean, where we have to renew the licenses from time-to-time. Off the top of my head I’m not aware of any very large one in 2009.

Michael Ciarmoli – Boenning & Scattergood

Okay.

Scott McQuilkin

So, 2010 I’m not sure what's happening out there, but certainly 2009 I’m not aware of any big ones.

Michael Ciarmoli – Boenning & Scattergood

Okay and speaking of renewals, how is the process with the Sony Ericsson going? I guess that’s one the 2G rolled off and I presume you are still in kind of negotiations working on a 3G deal with those guys?

Scott McQuilkin

Yeah, with respect to all the unlicensed folks we have different levels of dialog with all those folks. They are obviously, the remainder of the top five is our biggest priority frankly for 2009, to get that stuff done. And getting Samsung done, it’s very important both respect to that top five but I would also say with respect to the non-top five too. You tend to the discussions tend to move a little faster when somebody else is effectively doing the due diligence for them right?

Michael Ciarmoli – Boenning & Scattergood

Right.

Scott McQuilkin

So we are certainly seeing within some of our licensees somewhat of a quicker pace of discussions.

Michael Ciarmoli – Boenning & Scattergood

Okay. And then last one, I will get out of the way here. You mentioned your fixed royalty revenues streams for the current quarter and I guess for the next quarter expected to be 60%, what is the unit-based percentage, you just said it would be lower. Do you have that number?

William Merritt

Yeah the unit-based percentage is basically 40%,

Michael Ciarmoli – Boenning & Scattergood

40%

William Merritt

They add to a 100%

Michael Ciarmoli – Boenning & Scattergood

Okay. Great, thanks guys.

Operator

(Operator Instructions) We will take our next question from Bennett Notman with Davenport.

Bennett Notman – Davenport

Yeah hi, could you give us a little more color on what drove the increase in the technology solutions revenue line and if we should think of what we just size sort of a run rate level? Or is there something extraordinary during the fourth quarter?

Scott McQuilkin

Yeah, as I said in my comments, it was - the increase was driven basically by higher unit sales of licensees of our SlimChip modem IP, and certainly overtime, we expect that those licensees will continue to be successful and grow and we’d expect to see increases in that revenue stream associated with that.

Bennett Notman – Davenport

So should we assume that $5 million is kind of the baseline going forward or maybe some little bit of drop-off for that from the seasonality? But it is, that’s pretty good number to work with?

Scott McQuilkin

I don’t know if I would go that far I think, there is obviously a lot of factors that drive the numbers from quarter-to-quarter inventory adjustment, seasonality, new product introductions. So I’m not sure if I would say that. I would look at it more from a longer-term point of view and say that if our licensees are successful, we will see increases in that number overtime.

Bennett Notman – Davenport

Okay, and then on the legal expense side, should we assume that expenses will stay relatively low for Q1 before maybe kicking backup in the Q2 ahead of the Nokia, ITC commencement?

William Merritt

It all depends on the level of activities as I said, we are not, we’ve typically not provided any kind of guidance on that number just because it’s very sensitive to actions that we might take. And of course we do have the action with Nokia coming up in May.

Bennett Notman – Davenport

Thank you.

Operator

We’ll go next to Bill Nasgovitz with Heartland Advisors.

William Merritt

Hello.

William Nasgovitz – Heartland Advisors

Janet, can you hear me?

Janet Point

You are back now. Good.

William Nasgovitz – Heartland Advisors

You mentioned, you purchased the one-third of your shares. Do you have any idea of the average cost to lot of stock, cost per share?

William Merritt

Yeah, it’s a lot of stock overtime. The prices moves up and down. I can tell you for the $100 million program that we did in the last year or so, that’s I think it’s averaged some more in the $21 share.

William Nasgovitz – Heartland Advisors

Okay.

William Merritt

Prior to that, the average was probably a bit higher.

William Nasgovitz – Heartland Advisors

Okay, and is the buyback active today?

William Merritt

We completed the buyback in the fourth quarter.

William Nasgovitz – Heartland Advisors

And so what is the Board’s intent?

Scott McQuilkin

The share buyback is always something that we look at as an investment that we can make. So, it’s always under consideration by the Board and management.

William Nasgovitz – Heartland Advisors

Okay, thanks Bill.

Operator

We will go next to Michael Ciarmoli with Boenning & Scattergood.

Michael Ciarmoli – Boenning & Scattergood

Hi, guys. Just a quick followup, I guess Scott what’s the outlook how should be modeling for development expenses and can we expect additional kind of performance based items to hit in ’09?

Scott McQuilkin

Let me make sure I understand your question. Performance based items meaning?

Michael Ciarmoli – Boenning & Scattergood

You guys had the charge of, I guess the $9.4 million to adjust accrual rate on long-term performance?

Scott McQuilkin

I got you, yeah.

Michael Ciarmoli – Boenning & Scattergood

Is that something that hits in ’09 as well? And just how do we think of the trend in development expenses there?

Scott McQuilkin

Yeah, fair enough. On the development cost side, it depends very significantly on the past, we choose with respect to our modem business. As Bill said, that’s a decision that I think we will make in the near future and at that point in time, I think we’ll be ready to present, a pretty specific picture for what we expect there in terms of expenses going forward. And it could go in a number of different directions depending on that strategy. In terms of the incentive comp accrual, that was specifically related to one aspect of our incentive comp program. It was basically, in the fourth quarter a significant catch up adjustment for a program that accrues over a three-year period. If you spread that out, over three years, ends up having a fairly negligible effect on a quarterly basis. That particular program went through the end of the year 2008. We will pay it out in 2009. So, I don’t expect that there is a continuing expense associated with that program going forward.

Michael Ciarmoli – Boenning & Scattergood

Now, if you guys are there any payouts if you guys were to sign a Nokia and a Sony Ericsson this year? Would that trigger any additional payouts that would have to be baked into ’09 expenses?

William Merritt

Yeah, if you look at the – actually the company has - with many companies we have a number of long-term comp plans. And so the long-term comp plans as Scott just described one ran out this year. We have other ones that are in the middle of their cycles and running as well. And with respect those programs, they are certainly, they are incentive based programs and we want to drive the things in the company that drive to highest values. So, while you typically don’t put a particular licensee name into any of these things instead what you look at is overall share of the 3G market, overall cash produced. So, positive results with respect to a Sony Ericsson or Motorola or Nokia to the extent that you’re driving higher levels of cash which they will, they essentially are driving higher results for the company, they will find their way into those long-term comp plans in that matter. Scott can - and typically, we will accrue for those programs based upon some level of achievement. So, it’s just in the instance of ’09, what happen is that is we really we did extraordinarily well with respect to the results of the company and the results of which was an adjustment on that long-term comp plan.

Michael Ciarmoli – Boenning & Scattergood

Okay, fair enough.

Janet Point

And just to follow-up on that Michael, the long-term comp plan does cover about half of the employee population. So, it’s a fairly broad program throughout the organization.

Michael Ciarmoli – Boenning & Scattergood

Okay. Great, thanks.

Operator

We’ll go next to Bill Nasgovitz with Heartland Funds.

William Nasgovitz – Heartland Funds

Yes, can you hear me?

William Merritt

Yeah.

Janet Point

Yeah.

William Nasgovitz – Heartland Funds

Okay, good. It works this time. Development, could you just talk and amplify on $101 million for developments in 2008?

William Merritt

Yeah, I mean, principally Bill, the development expense is related to the modem program that we were driving a good portion of that which was a SlimChip modem, IP and ASIC program. And, with respect to that, we had a good year last year positioning that product in the market. As Scott mentioned, of course that program now has been under review for two months. We started that review again in the end of last year. And so the continuing expense with respect to that program will be very much affected by the strategic decision we make either to scale up that business, to sell it or to discontinue it. We expect to make that decision in the near term and once we make that decision we’ll give guidance but, in the instance where the programs are being shutdown, and those expenses will go down, and assimilate this being sold, those expenses will go down. And if we are scaling up, just to give you a sense to what we are thinking about in that side,and certainly if you are scaling up your expenses would go up, but we’re also looking at opportunities where we would be buying revenue streams as well, that would cover those increased expenses. So that’s the decision process we are in and in the near-term we will be making a decision there and communicating that to the market.

William Nasgovitz – Heartland Funds

Okay. How much do you think we’ve invested in the SlimChip over these many years in total?

William Merritt

If you look at the, the investment came in a couple traunches, the initial investment in the technology which drove the patent portfolio was occurring in, the early 2000s and then you made a incremental investment to develop software, and that was what drove the relationship for example with Infineon which is now starting to pay off as Infineon get share with Zappone, LG and other folks. The third level of investment was when we actually took the technology to chip and that really occurred over the last couple of years. Scott could probably give you a sense of that, but I break it into the buckets because, certainly the first bucket with respect to investing in the standards and stuff like that being repaid in with great value from the patent licensing programs. The investments in software are now being, we are seeing a return on that through Infineon is in our licensee sales. The ASIC business which has been the more recent one, that we had not yet had sales. We have not seen a return yet on that. Scott can kind of size it up for you the overall investment.

Scott McQuilkin

Certainly I think the best way to look at it Bill in we are kind of a one segment company and it’s difficult to say very discreetly that X dollars were in support of our patent license development program and Y dollars were a part of the product business. The truth is, the development expense is a benefit both sides of the business and although there is probably some expenses that are clearly on one side, some expenses clearly on the other side, there is a pretty big chunk of our development expenses that are really kind of in the middle and support both initiatives. The way I think we have described it in the past is, kind of go back to 2006, look at our quarterly development expenses there. That’s really when we started, an initiative to create an ASIC and look at quarterly expenses overtime and the increase in those on a quarterly basis, that’s a one way judge it.

William Nasgovitz – Heartland Funds

Okay. So, are you seeing a bulk of this is a SlimChip? Are you seeing the bulk of $101 million is SlimChip?

William Merritt

I think for the current - for 2008, and think a good portion of that expense is directly attributable to the ASIC implementation and that part of the portfolio.

William Nasgovitz – Heartland Funds

So as a long-term shareholder, I’m interested in how many we’re spending or how much we did spend just on our basic IP outside of the SlimChip? And what do we think that might be going forward? How many engineers are involved? Just put a little bit color on this for us, would you please?

William Merritt

With respect to the chip part or the non-chip part? I think the non-chip part. Okay, if you go back, and Scott can correct me, when we went to chip, I think we targeted…

William Nasgovitz – Heartland Funds

I’m just talking about 2008, and I looking forward.

William Merritt

Yeah, yeah I gotcha. I’d say a good portion of the investment in 2008 whether it’s 50% of that number or in that range is probably more associated with the chip and the other portion is probably associated with IP and patent generation and things like that. And I’d say that’s historical right. I think the one thing we are looking at with respect to investments in patents and IP is that there are some opportunities for incremental investments there, because you can see, that kind of return we get from the patent licensing program. So in my remarks, and I think in Scott’s remarks that we indicated, there maybe some increase in investment on that side of the business as we see new opportunities with respect to other wireless services and other wireless products, which we can extend the licensing program too.

William Nasgovitz – Heartland Funds

Going forward Bill, how much - just on the base business, not the chip, going forward how many engineers are involved and how many dollars?

William Merritt

Again, yeah I think it’s - there is a historical perspective, and then going forward there is an opportunity for growth. I don’t know where we would ultimately end in 2009 as we look at additional investment there. But historically, again on the patent and IP side, you are running anywhere, if you could be 100 plus engineers on that side of the equation and, that’s, we look at that staffing consistent with other folks that are participating in the similar businesses that we look at Qualcom and others, and how they attend standards parties and stuff like that. So, think of that in terms of that is kind of a average historical number, but think of that that in terms of maybe some increased investment there to drive some new licensing opportunities in ’09. Okay.

William Nasgovitz – Heartland Funds

Okay.

Operator

We will go next to Philip Zera, with Algorithm Capital

Philip Zera – Algorithm Capital

Yes, good morning. My questions pertain with ITC case with Nokia.

Scott McQuilkin

Okay.

Philip Zera – Algorithm Capital

The evidentiary hearing is scheduled for the end of May, correct?

Scott McQuilkin

That’s correct.

Philip Zera – Algorithm Capital

And my next question is, is the composition of staff, the same that is the same person of persons that were involved or made the recommendation in the Samsung case?

Scott McQuilkin

I know that he was the staff attorney was previously on the Nokia case. I’m not aware that there has been a change but I also don’t follow that part of the case that that closely. So, I know that he was - at one time he was handling both the Nokia and the Samsung cases, so the actions, there hasn’t been some change at the ITC I assume he's still the counsel on the case.

Philip Zera – Algorithm Capital

Okay so the counsel is the same, The Judge Luckern is the same.

Scott McQuilkin

Yeah, Luckern is the same Judge.

Philip Zera – Algorithm Capital

Right. And the four patents that the same, correct?

Scott McQuilkin

Yes, I think there is the Samsung, case had five patents in it, this Nokia case has four, but the four are the same that were in the Samsung case. Those just an additional patents in the Samsumg case.

Philip Zera – Algorithm Capital

And actually I believe your legal team was actually the same as well?

Unidentified Company Representative

Correct, yes for a good reason. They did a good job.

Philip Zera – Algorithm Capital

Thanks. Thank you.

Janet Point

Okay.

Operator

We will go next to Bennett Notman with Davenport.

Bennett Notman – Davenport

Yeah hi, couple questions first on the $2.3 million in bad debt expense, where did that show up on the P&L?

William Merritt

All right. That will show up, I believe in general and administrative expenses and it’s related to a dispute with one of our licensees and we believe that we’ve delivered everything we need to deliver under that agreement and we are currently taking actions, to resolve that. It hasn’t been a write-off, but we established a reserve for it.

Bennett Notman – Davenport

And are there potentially additional dollars in dispute there? Or is that cover that whole amount?

William Merritt

That covers the whole amount.

Bennett Notman – Davenport

All right, great. And then when you are looking at the potential to grow the technology solutions business, are there any parameters around dilution, or any just philosophical things we should think about helping you make this decision, I mean, would you be willing to make a dilutive acquisition if you thought it was the right technology platform?

William Merritt

Yeah I mean, I think on the certainly the environment is one where acquisitions could be at the right price right now, because there’s a lot of companies out there that do need or in a position where they need cash and there is not a lot of free cash available out there. And so, I think does give us an opportunity to complement, for example the existing patent portfolio with new patent to expand our licensing program. I think it can give access to some future technologies There is folks out there working on all sorts of interesting things that will apply to 4G systems and beyond and I think we can may some good investments there. But I’ll tell you, obviously, while the opportunity is real good and we’re going to put a lot of resources against M&A to uncover the opportunities, we have a pretty good process internally to make sure that what we acquire is going to have real value. So this is not just a process to run out and acquire a bunch of things. It’s to go out there turnover lots and lots of rocks and see what’s out there and then if the right acquisition is out there and to make right acquisition.

Bennett Notman – Davenport

Thank you.

Operator

That will conclude today’s question and answer session as well as today’s conference call. Thank you for your participation you may disconnect at any time.

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