On January 19th, Ottawa's technology patent licensing king, Mosaid Technologies (OTC:MBTHF), was able to announce that its biggest licensee, Samsung Electronics (OTC:SSNLF), has agreed to a five-year patent licensing agreement on non-memory integrated circuit products. Immediately subsequent to that announcement, Mosaid raised full-year 2010 guidance, and just about every analyst on the street raised 12-month target prices.
As part of the agreement, Mosaid also acquires several more patents from Samsung and enters into a R&D partnership on new NAND flash storage technology. Interestingly, a day later, Samsung announced that it had settled a patent suit with Rambus (NASDAQ:RMBS), and entered into a multi-year $900 million licensing agreement related to DRAM patents. As part of the transaction, Samsung agreed to invest $200 million and to enter into a R&D partnership on new NAND flash storage technology. At the time of the transaction, a $200 million investment in Rambus was equivalent to approximately 18% of the company. Through the nearly simultaneous agreements signed by Samsung, it looks like there may be some joint IP development in the future for IP specialists Mosaid and Rambus. This should benefit Mosaid shareholders.
Why is NAND development interesting? As mobile devices developed by Samsung, Sony (NYSE:SNE), Motorola (MOT), Research in Motion (RIMM), Apple (NASDAQ:AAPL), Nokia (NYSE:NOK), and Google (NASDAQ:GOOG) continue to get more powerful, they will need more onboard storage and solid state RAND technology is probably the most space efficient and cost-efficient way to increase storage. Apple's new iPad (unfortunate branding aside) depends on it. So to will affordable netbooks, notebooks, and any other portable computing devices that run local applications and that consumers will actually want in the future.
As R&D continues in earnest worldwide, within two years we could see read / write storage on smartphones eclipse the hard drive of the computer now sitting in front of you. Moore's Law perpetuated.
It's been a very good month for Mosaid and there are probably more good months to come because its patent portfolio aligns well to the exploding mobile infrastructure industry worldwide. Samsung, and now Sony, help to set the table for other multi-faceted multi-year licensing deals with major players in the mobile ecosystem worldwide. As well, the semiconductor space seems to be recovering well after a tough 2009. So Mosaid's semiconductor customer base is becoming financially de-risked.
Financially, Mosaid still has some customer concentration risk, and IP litigation itself is a risky activity because the government regulations that IP rights depend upon are inherently risky. However, with last quarter gross margins of 90%, EBITDA margins approaching 70% with net income margins of 46%, there is a lot of leverage for investors, along with a newly minted dividend announced last quarter.
The consensus analyst target is $25.95 right now. As the company monetizes its IP over the next twelve months, watch for more guidance adjustments and analyst target upgrades throughout the year. The stock opened yesterday at $22.80 subsequent to Monday's Sony announcement, which implies 8.87x forward PE on the low-end net income guidance with consensus forecast at 10x low-end net income guidance. To put this into perspective, the current mean PE Ratio of the QQQQ powershares (proxy to the NASDAQ 100) is 21.15x. So, as an IP portfolio manager in the middle of a mobile infrastructure boom, the stock appears relatively reasonably priced on a PE multiple basis.
Last year, the company began an IP licensing process with IBM, so there are likely to be some future blockbuster announcements. Long shareholders are likely already in the stock. If not yet there, any time is a good time.
Disclosure: I do not own shares of any of the stock mentioned above.