This is a follow up to the Seeking Alpha article ParkerVision Vs. Qualcomm: Where Is The Upside? If you haven't already read this article, please do so before continuing.
In response to this SA article, the only analyst covering ParkerVision (NASDAQ:PRKR), Jon Hickman of Ladenburg Thalmann issued a new report dated April 17, 2013 on ParkerVision. This article points out a number of serious errors in the new report.
I will use the same headings as the analyst's report to make comparison easier.
Prior Art: Jon Hickman claims that the recently filed prior art references of Document 248 (Defendant Qualcomm's Answer to ParkerVision's Third Amended Complaint and Qualcomm's Counterclaim and Demand for Jury Trial) teach "Voltage Sampling", as compared to the "Energy Sampling" as claimed by ParkerVision. This assertion is completely false. For example, Tayloe98 explicitly shows the transfer of voltage and current (i.e. power) and accumulates the power in a capacitor (i.e. energy) over multiple cycles of the aliasing signal. This is precisely what is covered by claim 1 of the '551 patent-in-suit. Every element of that claim is explicitly taught by Tayloe98, and further analysis shows that Tayloe98 quite clearly anticipates (invalidates) most of the claims-in-suit. The other references of Document 248 are similar and explicitly teach precisely what ParkerVision claims they don't teach - taking energy from a carrier signal through a switch controlled by a aliasing signal and storing (accumulating) this energy in a capacitor.
The Ladenburg Thallmann report notes, "We note that voltage sampling actually teaches away from the sampling of current and generally employ filters to eliminate the transfer of current," but the references prove this statement to be false. The references explicitly teach transferring both voltage and current, explicitly teach accumulating both voltage and current (i.e. energy) in a capacitor and do not use filters to eliminate the transfer of current. They could not be more clear-cut.
Laches: According to Ladenburg's report, "It is our understanding that this ZIF technology involves analog RF down conversion. The technology that is in dispute covers digital direct RF down conversion of carrier wave. To our knowledge ParkerVision has never patented analog receiver technology and analog technologies are not the subject of the ongoing legal action with Qualcomm." Once again, this is incorrect. The mixer used by Qualcomm and claimed by ParkerVision converts a RF carrier signal (analog) to a baseband modulated signal (also analog). All RF mixers are inherently analog! There can no doubt that the mixer under dispute is analog technology and that ParkerVision has quite definitely attempted to patent analog technology.
The ZIF chip receiver chip (RFR6120) from the original Qualcomm announcement of ZIF technology is in the list of accused chips by ParkerVision, so PRKR obviously thinks that the ZIF mixer was covered by these patents.
While other strong proofs of laches exist, rather than belabor the point, I will let Qualcomm make the arguments in future briefings to the court.
The Question of Royalties - Targeting the Upside
Here again, we see the Ladenburg report make several important misstatements. The report contends that Qualcomm would immediately agree to a royalty on world-wide sales of transceiver plus baseband chips if they lost a jury trial. A U.S. Jury can only award damages on U.S. sales, so it's unclear to me why Qualcomm would agree to pay royalties on world-wide sales, especially if they are appealing any adverse decision and given that there is essentially no chance of an injunction.
The Ladenburg report further states, "We believe that ParkerVision is entitled to a royalty on the combined dollar value of both the baseband processor and the receiver package." The legal term for this is "convoyed sales". Qualcomm sells transceivers and baseband chips. Transceiver chips sell for $2-$5, and baseband for $20 and up. There are a few combined transceiver/baseband chips, but they are only used on ultra-low-cost phones. ParkerVision has the burden of proof on convoyed sales, and they must prove that the patented feature is the basis for customer demand for the non-infringing components. This is pretty obviously wrong, as Qualcomm's baseband chip, and associated IP, is clearly the customers' primary choice; while the transceiver is a matter of convenience and compatibility rather than a driving part of the decision. Since the mixer is not even a tertiary consideration for Qualcomm's customers, I see very little chance that ParkerVision can win on the issue of convoyed sales. Therefore, I believe that ParkerVision, at best, will receive damages and royalties for only the transceivers sold in the U.S.
The analyst did not respond to my contention that, given an adverse legal outcome, Qualcomm would simply revert to a non-infringing alternative (active mixer), over a 1-2 years transition period. Because of these considerations, the analyst comes up with royalty numbers that are 25x too high per year, and extends the royalties out indefinitely.
Statements such as the following, "As a development stage company ParkerVision is not yet selling its RF transceiver product and has yet to produce meaningful revenues," makes me think that the analyst is unaware that ParkerVision has been unsuccessful for the past 6 years in selling an RF transmitter. Why does he now assume that ParkerVision will be more successful selling a full chipset, with a receiver, transmitter and power supply? A low-end transceiver sells for $2-$4, a low-end power amplifier (PA) sells for $0.50-$1.00, and there is currently no transmitter market (i.e. current chips put part of the transmitter together with the receiver in a single die, and use an external PA.) There is every indication is that ParkerVision will never manage to sell any transmitter or transceiver chips, either in 2013 or 2014. Every customer that Jeff Parker has touted in conference calls as imminent so far has walked away after testing the product. I'm quite certain the current "customer" discussion will end with the same outcome, and that ParkerVision will continue to have no chip sales for the foreseeable future.
Valuation Methodology #1 (Positive Outcome from Litigation)
In this statement, "If ParkerVision were to win the patent litigation, Qualcomm would face an immediate injunction against the further sale of its infringing chips," the analyst shows a lack of understanding of current patent law. ParkerVision is an NPE (non-practicing entity). With a single exception, NPE's can't get injunctions since eBay v. MercExchange. Without an injunction, Qualcomm has no reason to settle, and every reason to appeal in the event of an adverse trial outcome.
The analyst assigns about $2.50 per share value to future D2P product sales, which are currently non-existent, have been promised for years, are exceedingly unlikely to ever occur, and even less likely to ever be profitable. I can't see how a value of anything more than $0.25 per share is even remotely plausible. ParkerVision stock had dropped to well under $0.50 before the filing of the Qualcomm lawsuit, showing what the market thought of this same value two years ago.
The litigation outcome is assigned a probability of 33.6% for an outcome worth $15-$20 per share in the report. Even if I grant the 1/3 chance of success (I put it somewhat lower), I see no remotely legally plausible outcome worth even $1.00 per share, as I firmly believe that the analyst has made errors resulting in economic outcomes 25x too high, based entirely on false assumptions and claims by ParkerVision.
I conclude that after correcting the technical and legal errors made in the latest Ladenburg Thalmann report, that the current stock price target should be well under $1.00.
Disclosure: I am short PRKR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long a small amount of QCOM.