InterDigital, A Victim of BlackBerry's Fall

As the dust starts to settle on BlackBerry (BBRY) shares following what looks like stronger than expected sales of Apple's (AAPL) two new smartphone models -- the iPhone 5s and the iPhone 5c -- the logical question that any investor or amateur detective should ask is who benefits? I've mentioned looking at the food chain, supply chain or ecosystems of key suppliers before. Earlier this week I touched on such players in the auto and truck industry -- American Axle (AXL), TRW Automotive (TRW), Federal Mogul (FDML), Measurement Specialties (MEAS) and others. We can do that for the smartphone sector as well. Key players include Qualcomm (QCOM), Skyworks Solutions (SWKS), Broadcom (BRCM), TriQuint Semiconductor (TQNT), Anadigics (ANAD), RF Micro Devices (RFMD), Avago Technologies (AVGO) and Peregrine Semiconductor (PSMI) to name more than a few. In the past, it was a rather simple game to buy a basket of these suppliers for the seasonal trade -- buy in late August or early September and hold them through the fourth quarter. It worked like clockwork for a number of years. As smartphones have become increasingly complex devices, however, that strategy has not really worked and investors need to dig a little deeper to understand not only which supplier in is the latest must-have device, but how much content it has in the latest model compared to the prior one. Luckily, there are several Web site that do a tear down analysis on new smartphone and tablet models. The one that I tend to use if not rely on for tear down analysis is iFixit and they've already performed such a review of the iPhone 5s. The supplier winners for this new model include Qualcomm, Broadcom, TriQuint and Avago. The flip side of this who benefits argument is who gets hurt by falling volumes from the likes of Nokia (NOK), HTC and the aforementioned BlackBerry. As part of that shocking news that included a $1 billion loss, BlackBerry shared that it shipped only 3.7 million devices during its August quarter compared to 6.8 million sequentially. With certain suppliers -- such as Qualcomm, Texas Instruments (TXI), RF Micro Devices and Avago -- supplying BlackBerry, that shortfall will have to be factored against participation in other winning platforms, like Apple's new devices as well as Samsung Galaxy products. There is, however, one company that will take it on the chin from weaker shipments from both HTC and BlackBerry -- InterDigital (IDCC). The IP licensing and technology company counts both HTC and BlackBerry as per unit licensees, which means a drop in units sold impacts InterDigital's revenue. Keep in mind the company is still a basket of legal action against Nokia, Huawei and ZTE, and has yet to ink LTE agreements with past key customers, such as Samsung and LG. Blackberry and InterDigital inked a 4G LTE agreement in January, which means the negative impact on InterDigital's revenue and earnings could be more meaningful. In short, this does not bode well for InterDigital's September quarter results and it looks like Wall Street expectations have yet to catch up to this news. Absent any win against Nokia, Huawei or ZTE, which is unlikely near term because the U.S. International Trade Commission announced only on Sept. 4 it would be reviewing the initial determination, there is little reason to pick up IDCC shares ahead of its quarterly results. My recommendation would be to revisit IDCC shares on a sharp pullback. A drop in BlackBerry sales translates to fewer IP licenses from InterDigital this quarter.

InterDigital, A Victim of BlackBerry's Fall

BlackBerry's big shortfall hits InterDigital's IP license sales.

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