Paolo Gorgo

Special situations, long-term horizon, long only
Paolo Gorgo
Special situations, long-term horizon, long only
Contributor since: 2008
Company: Nortia Research
Yes, definitely an interesting story, although investors may prefer smoother ones.
I see the possibility of a party interested in owning IMMR's technology as very real, if the share price remains very low.
Patents may not be as valuable as before in this climate, but IMMR's patent portfolio may mean something to companies like Samsung (against Apple), Google (as basic haptics is part of Android's built in functionalities), Apple itself, as you mentioned (as a key to demand royalties to all other Android OEMs). Not to mention the value of haptics for the automotive sector.
Time will tell.
Thanks for your comment.
thanks for your comment.
I think you nailed it: Samsung isn't certainly happy to see many IMMR infringers out there competing with them, often on price, for the same consumers, especially in markets like China or India. Unfortunately that may come as the negative side of being the market leader, fairly competing worldwide against local OEMs, often born out of countries where respect for IP isn't very strong.
What I mean is that Samsung may be experiencing a similar situation with its recent Nokia settlement: can we exclude that some Chinese or Indian OEMs are infringing on the same patents? Probably not, but that's not enough of a reason for Samsung to justify avoiding paying for Nokia's IP.
I also saw Xiaomi's missed renewed licence agreement as a red flag, for its repercussions in the Chinese market and with IMMR's existing customers. I guess some colour from management might help understand what happened. It is certainly bad P/R for a "must have" technology like haptics if a customer can decide to walk away from licensing it with no apparent set back.
Samsung may be willing to save on IMMR's agreement. However, if we divide their existing revenues by the number of devices shipped, we'll probably find out a per-unit number inferior to basic haptic only royalties, that gives access to a whole world of more advanced effects.
It is always easy to run companies from the outside (been on the other side of the table...), but an agreement seems to be in both companies' best interest.
I know my English could be much better (not my mother language, I'm Italian), so I take your comment as a call to improvement. Point taken... :-)
good one - still a bit of an enigma to me... :-)
thanks for your comments and for sharing your diligence.
Interesting comment.
I must admit that a deep analysis of the two technologies is a bit outside of my core competencies. However, at this stage, as a potential end user I find a bit disturbing the fact that I would need a special case to recharge my iPhone with fliCharge (I don't use any). If I have to put a cover on it to charge it in the car, I don't really see an advantage compared to plugging it. That's why I believe full cooperation from the OEMs would be needed in order to make this system in the "standard and easy" for consumers. Just my 2 cents.
Thanks.
I'm not short, as by my disclosure, and the timing of the article is only related to finding some free time to put down my diligence in proper English.
I doubt my articles may move stocks, and I see you don't disagree on the main thesis: Vringo will succeed or fail depending on the outcome of the litigation against ZTE.
However, this acquisition has also meant further dilution for Vringo's shareholders, with no short term advantage (you've also been skeptical, as by your initial comment, about it).
Thanks for your comment.
That's an interesting comment. The acquisition could open the door to some sort of patent licensing - or litigation. That's an area that could be worth more investigation.
However, Group Mobile doesn't really seem to fit with Vringo's core business, and I wouldn't be surprised to see the company dispose of it (but no such indication has been given so far).
Thanks for your comment.
Good to have a contrarian view as commentary to the article - let me try to reply to your points.
1) The removal of Luca Cordero di Montezemolo from Ferrari has been considered by most observers a clear indication of Sergio Marchionne's change of strategy as to future volumes. Unlike you, I don't think growth in the next few years will be similar to what it was in the past. I don't see production as an insurmountable problem. Only time will tell.
2) You are right saying that Ferrari has no financial advantage if their cars increase in price with time, but I'm sure you agree that this makes selling the next model much easier for them - especially when 30% of you client base are repeated customers.
If any other car producer could come out and say "our cars lose only 10% of their value in 5 years as opposed to 50% for our competitors" I am sure you would evaluate attaching a premium to this company.
3) You are entitled to your opinions about Ferrari's customer base (less so to name calling), but reality is that long delivery times talk about strong demand for their product at the moment. Again, time will tell if Marchionne's strategy will be successful.
4) It is. if you consider Ferrari a very slow growth automobile company. It is not if you see the company belonging to a different category - luxury goods.
Thanks for your comment.
Ferrari as a luxury brand has certainly great growth prospects. Its financial performance should be good both in the short and long term.
If and when the market will put the stock in the luxury stock category, rather than see it as a car producer, we may see higher multiples applied to its shares.
I would describe it more as B. Riley & Co.’s Mike Crawford expecting it to happen (while IMMR's comments are more in the range of "we have a strategy around AAPL haptic adoption"):
>He [B. Riley & Co.’s Mike Crawford] does, indeed, think the Apple domino will fall:
To reiterate, we believe Apple, one of the last remaining handset OEMs not under license, will need a license from IMMR, although FY ’15 guidance and our estimates don’t include potential Apple license revenue. Furthermore, in May, at our 16th annual B. Riley Investor Conference, CEO Viegas confirmed our stance, stating that IMMR intends to license Apple. In addition to any potential license fees received from Apple, we believe the company’s Content & Media division would also benefit if Apple incorporates haptics into its next generation iPhones, as the adoption and enablement of haptics by large mobile content providers (e.g. YouTube and Facebook) would likely accelerate as haptics technology in smartphones approaches ubiquity.
http://on.barrons.com/...
>07/28/15 Update IMMR ($11.75, Buy; $16.00 PT): Earnings Preview: Apple License Appears Ripe for the Picking; Introducing 2017 Estimates; Raising PT from $13.00 to $16.00
http://bit.ly/1JctPoC
I doubt IMMR is "involved": Apple has filed several patents about haptics, and is, in my opinion, finding "its own way" to implement it in its devices (I expect iPhone and iPad to be next). As it has often happened, Apple is very good at "improving" and adopting a technology when fully mature.
What is interesting is that Apple patents often quote Immersion's previous patents, and I have no doubt that the Cupertino company is aware of IMMR IP. So we remain with IMMR's comment about "we have a strategy around that [Apple] engagement" - personally hoping it may lead to Apple licensing some IP rather than another lawsuit which could take a lot of time and resources.
To resume my two cents: I don't see Apple using IMMR touchsense solutions, but rather needing a license to some basic haptic IP. Time will tell.
Point taken - however, we should not forget that right now expenses also include legal costs related to the most recent litigations. These costs should hopefully disappear in the future, unless the company is forced into more litigation.
We both agree that IMMR high margin business model is interesting: I would add that we should probably look at cash flow as the most interesting metric to apply multiples to.
Thanks for your comment.
Throughout the last few years many investors got tired of waiting for the company to really start performing - and traders have probably performed better than long term holders.
I can understand your feelings... but haven't lost hope that some verticals (like automotive) might finally kick in and start a positive domino effect. The business model justifies rich multiples, in my opinion, once some revenues levels/growth numbers are reached.
yes, I also expect (hope for) a better performance over the long term - but at least that's an effort to link CEO compensation with stock price.
As to guidance, I don't expect any update related to HTC either.
But my angle is slightly different: I guess you refer to the "not anticipated to have a material impact on our financial results for 2015" comment to say that the company explicitly said no guidance changes would arise from this event.
My view, which could be wrong, is that management could not calculate the exact impact well enough to announce an "updated", or at least narrowed to the higher end, guidance - but had enough data to call it "unmaterial".
In other words - let's speculate a $1 million impact on 2015. This could be both immaterial but still justify an updated guidance. Management is playing safely and just announcing the former, until the number has been verified better.
More important to my thinking, no updated guidance isn't equal to disappointing settlement, at this stage.
We may all get a better idea of the settlement in a few weeks, if the 10Q allows us to get a few clues.
Thanks of your comment, ciao.
You are correct, some of the first information released at the very beginning were not completely correct as to the number of patents claimed invalid by the judge (3 - '105, '181, '720) and the number of patents (2) where the judge denied HTC request for non infringement ('288) and agreed on a literal infringement ('846).
If you love legalese, you may read the memorandum opinion at this link:
http://bit.ly/19hjIjK
Not our core competence, but here is a short summary of our understanding:
'105 - invalidity granted (however, literal infringement found)
'181 - invalidity granted
'720 - invalidity granted
'288 non infringement denied
'846 literal infringement
'999 infringment allegations dropped before trial
Hope it helps.
The discussion on the "timing" (12:00:01 or not?) of the parent patent issuance and the patent applications for '105, '181, '720 is fascinating for a non-lawyer: kudos to HTC for finding a great Dr. Quibbleweaver [we here refer to Manzoni's The Betrothed (orig. Italian: I promessi sposi) and "Dr. Azzeccagarbugli" - please excuse the reference which may not sound as effective to non-Italians].
Bad news, but probably not so bad. The infringement seems to be there, although HTC lawyers were very good at finding a loophole. Our understanding is that '105 also had a literal infringement, which is now irrelevant as the patent was declared invalid.
This investment sounds more and more like a bumpy road with just a few periods where investors enjoy the great potential of the technology finally translating into a smooth travel. Until the next bump... :-)
Karl,
thanks for your comment. Yes, Engaged Capital pushing for better results should act as a positive, in this situation. Unfortunately it is always relatively easy to run "what if" excel simulations, but real world results are always linked to more uncertainties than people may forecast. It will be an interesting story to watch in the next few quarters.
I think this quote from IMMR Q2 14 c.c. may help explain the matter better:
http://seekingalpha.co...
>David Williams - Ascendiant Capital
Great. And one more if I can, I just kind of wanted to think about Samsung and realizing that you guys have a fixed contract with those guys. So, we're definitely starting to see a little bit of softness in their business. Is there anything that you could see or maybe look at as maybe being a contributor to your business, any concern of maybe about the softness there?
Vic Viegas - President and CEO
Well, I think the nature of the relationship we have with them is that we said in the past relatively fixed. And so I think we are somewhat insulated from any other market challenges that they might have. We still work hard to bring new technology, the new product areas and have the opportunity to continue to increase revenue there. But for the most part, I'd say we are fairly well protected from the market differences or the volume assumptions that happen throughout the year. <
In mobility IMMR has a few mostly fixed ("so much for this year") agreements, where the variable part doesn't represent the major revenue contributor. This also explains why cash increases so much at the beginning of the year.
Customers' profits are not a concern for the company, as unrelated to both fixed or per unit deals (obviously a customer going broke like Pantech is not good news, but that's another story).
In the short term, there should not be a huge impact - the Samsung agreement has mostly turned into a fixed rate one. Over the long term, a strong decline, by Samsung, in units sold might obviously have a negative impact. Hope it helps.
rleebue,
thanks for sharing your diligence and comments.
A couple of notes related to growth: when we compare 2014 and 2013 revenues, we should also remember that 2013 was positively impacted by a one time event related to the Samsung renewal (roughly $2 million).
Over the long term, I see both advertising and automotive as potential catalysts for growth - which at this price may be considered something like a free call option incorporated in the share price, if you have an optimistic view on the company and the future of haptics...
A buyout may be the quick solution round the corner to create shareholder value. A recent addition to the BoD may have added a manager who's already been through this experience.
Guidance.
The market was expecting an improved guidance for 2014 (say narrowed to the high end). Lack of improvement has been translated into doubts about the quality of the LG renewed deal.
If you go to this link, you'll find how Apple describes haptic:
http://bit.ly/1qO4BE3
We found a way to give technology a more human touch. Literally.
It’s called the Taptic Engine, a linear actuator inside Apple Watch that produces haptic feedback. In less technical terms, it taps you on the wrist. Whenever you receive an alert or notification, or perform a function like turning the Digital Crown or pressing down on the display, you feel a tactile sensation that’s recognizably different for each kind of interaction. Combined with subtle audio cues from the specially engineered speaker driver, the Taptic Engine creates a discreet, sophisticated, and nuanced experience by engaging more of your senses. It also enables some entirely new, intimate ways for you to communicate with other Apple Watch wearers. You can get someone’s attention with a gentle tap. Or even send something as personal as your heartbeat.
Just a few weeks ago, people were skeptical that Apple would EVER endorse haptic. I believe this could really act as a trojan horse that will lead to haptics in more Apple devices (why limit sending a heart beat between watches, when you have millions of iPhones and iPad owners?)
Let's see how things develop.
PS: thanks for your kind comment.
It is interesting to note that IMMR has just added three videos that are also interesting to understand what kind of added value haptics can bring to wearables, and that a smart watch may be a great companion to a smartphone, rather than a substitute:
http://bit.ly/1qNLzhh
fitness related
http://bit.ly/1qNLBWq
haptics to communicate emotion - you can email a heartbeat to your beloved
http://bit.ly/1qNLzxz
intensity mapping - haptics as a way to communicate proximity to a specific location
IMMR patents don't look that weak in absolute terms, if you consider that the company has never lost a court case (Sony was forced to pay around $100 million plus for their use of haptics into the first three generations of PlayStation), and that Google/Motorola preferred to go for a license of basic haptics in an Android environment rather than continue to defend in court.
It is true, however, that some work arounds may be possible (IMMR holds some key patents in this field, but doesn't "own" it), and that some OEMs have tried to use haptics in their products regardless of holding an IMMR license.
I guess it is too soon to say the last word about Apple "tactics", as we do not have enough data to understand how haptics was implemented.
you are correct, franchising should be $7.5 million only in the last chart. I apologize for the mistake, and thanks for correcting the data.
Great article, as always.
With proper execution, we might finally see Jamba develop its potential in the next few quarters.
it looks like management gave you a great opportunity to get back at a lower price... ;-)
The market reacted to the earnings miss as if the company hit a brick wall: it may not be the case.
My main concern is the LG negotiation: if that is solved positively (a similar situation happened with Samsung at the ned of 2012), we may see a good reversal.
Daniel,
could it be worth opening for the week to all readers the articles chosen as outstanding performance award winners? This could allow a greater audience to evaluate the call and get familiar with the story (which most likely has already played out, so that PRO subscribers shouldn't get much upset from this free pass...)
Great initiative, by the way.
Karl,
great article.
Jamba management has done a great job with the hardest part of the turnaround, but seems not inclined to discuss/disclose what hasn't really worked well recently (such as CPG). And yes, this level of G&A is oversized for today's numbers.
Let's hope Engaged Capital Holdings may act as a positive catalyst for execution - patience is the name of the game, although I still believe the business model may reward investors nicely, over the long term.
Any breakthrough innovation like this should translate into a positive for Immersion, as the company owns most of the IP related to haptics, and an IMMR license should probably be required to commercialize these products.
Consensus sounds reasonable to me - and I agree forward P/E ratio is interesting. If management executes well, and given the company's business model, IMMR may turn into a great cash cow.
My own numbers are similar to what most analysts are expecting, with probably more emphasis on FCF generation. Just to quote Riley, "Our price target of $16.50 is based on a FY ‘16 EV/EBITDA multiple of 12x, which closely translates to a FCF yield of approximately 9% after considering the company’s tax assets and low capex". I get to a similar TP number, and expect even more if some catalysts / momentum /positive news materialize on the way - of course I could be wrong, and it's a long term view which assumes good execution and lack of road bumps.
Thanks for your comments.
Q4 13 saw the impact of an income tax benefit of $36.8 million, or $1.24 per diluted common share, resulting primarily from the release of a tax valuation allowance relating to net deferred tax assets. That explains the strange trailing P/E number.
B. Riley has just launched coverage on the company, with a very interesting report.
You may read their headline here:
http://bit.ly/1jvvAMO

IMMR ($10.78, Buy; $16.50): Market Leader in the Rapidly Expanding Haptic Technology Market; Initiating Coverage with Buy and $16.50 PT