InterDigital had been trying for some time to sell itself in order to increase shareholder value. The company holds around 20,000 patents and Intel bought 1,700 of them.
Initially the deal sounds like a solid move on InterDigital's part, but in reality the company has just sold off its best patents to Intel. Some of the patents sold to Intel include 3G, LTE, and 4G connectivity. In addition, wifi patents related to 802.11ac have been acquired as well. The 802.11ac technology is known to have significantly faster speeds and is on its way to becoming the standard in wireless technology. Here is a good article that explains the benefits of the technology.
Intel acquired these patents since it will be making a push into the mobile market. Intel will have significant control over a market with plenty of growth ahead. By having these major patents, Intel will also be able to monetize on IP infringement lawsuits.
While this deal is good for Intel, its not so good for InterDigital. InterDigital could have generated plenty of cash from these patents as the smartphone market expanded. Intel seems like it got a good deal as well by paying $375 million.
InterDigital has been able to sue companies such as Samsung that have infringed on patents. However, without these patents, the remaining portion of the portfolio is not as valuable anymore. InterDigital's patent portfolio will not be worth as much meaning the value of the company will fall. I expect revenue to decrease over time due to the sale of these patents.
The other point that concerns me is how InterDigital plans to use the $375 million that they will be receiving. $375 million is a large sum of money for InterDigital and the company could use it for R&D, but instead they seem to be increasing their share buyback program. Not only did they announce the sale of patents to Intel, but they plan on increasing their share buy back program by a $100 million. This is double the initial amount they announced in May.
InterDigital sold its best patents off and they are using a large portion of the proceeds to buyback shares. I don't believe this to be a sound strategy and feel the company is going in the wrong direction now. Investors should sell on this nice jump.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.