The jury phase of the legal proceedings is now concluded with ParkerVision (NASDAQ:PRKR) prevailing on the questions of infringement (both direct and indirect) and patent validity. Qualcomm (NASDAQ:QCOM) prevailed on the question of Willfulness and the jury awarded ParkerVision a rather small sum ($173 million) for past damages.
In our opinion, ParkerVision is now in position to legally demand royalties from Qualcomm for products shipped through 2022. Qualcomm stated at trial that there is no work around. Additionally, deployment of its RF transceiver chip set with its OEM partner, Samsung (OTC:SSDIY), is likely in the very near-term.
The recent verdict eliminates the risk to our investment thesis and allows ParkerVision to generate royalties, revenues and profits for the coming year. We conservative estimate that ParkerVision will generate royalties of more than $100 million in the coming year. We see this number growing by approximately 20% per year based on increased sales in the chip industry over the next 13 years.
Here is our valuation analysis. According to PRKR's press releases, Kevin Rivette (Head of legal strategy for ParkerVision) has identified more than $100 billion of annualized revenues infringing PRKR's patents, some of which infringe the patents which QCOM has been guilty of infringing. Now that the jury has found these patents to be valid, and valuable, we expect that PRKR will either be filing new lawsuits soon, or that infringers will settle. According to PRKR's statements on conference calls, Rivette has approached between 8-10 companies to tell them they infringe, and about half of these have signed his stand still agreement. QCOM represents just $10-$15 billion of the $100 billion, in our opinion. Net of paying McCool, PRKR should have about $1.50 per share in cash post collection of the damages. Keep in mind that all future litigation will be on contingency so expenses to ParkerVision will be substantially reduced. The $20M on the balance sheet will easily move the company through futures stages in its transition.
QCOM is expected to sell 775m chips next year, and US share is about 37%, or 286m chips. Damages suggest jury valued our tech at $0.23 per chip. 286m * $0.23 = $66m in royalty revs - $20m in SG&A= $46m less 35% tax load for a company in Florida = $30m / 100m f/d s/o = $0.30 EPS * 20 P.E = $6.00 plus the $1.50 cash per share -$7.50 price target WITHOUT growth from QCOM, WITHOUT a royalty on international sales (which we believe will get when the royalty rate is negotiated) and WITHOUT contribution from Rivette's company's. 2014 EPS including international sales = $100m or $1.00 per share, suggesting a $20.00 stock.
For investors interesting in the timing of future events. It is our understanding, from our conversations with analysts and large stock holders, that the Judge has already ruled on injunction. He has stayed his injunction until the parties come to an acceptable agreement on future royalties.
If the parties fail to come to an agreement, the judge will ask for the "Last Best Offer" from both sides and make a decision. Given the comments during the trial, we would very much prefer Parker's side if the decision is left to the Judge. The Judge can also increase the royalty from the Jury's calculation of .23 per unit to a higher number.
The other possibility if the parties cannot agree within 45 days, the Judge may also follow through with the injunction to force Qualcom's hand.
At this price ParkerVision not only discounts the value of future events but present events as well. We expect shareholders to be significantly rewarded in the near-term as new legal claims are filed, news of the royalty agreement is brought forth and court rulings are posted to the ParkerVision's web site.
Disclosure: I am long 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.