President, Chief Executive Officer & Director, INTERDIGITAL INC
InterDigital CEO Calls Company an "Engine" in Telecom Industry
Liren Chen, CEO & President of InterDigital (IDCC), says his company has "one of the most profitable portfolios" in the industry.
About Lawrence Chen
In a September 2024 interview, InterDigital CEO Liren Chen described the company as an independent research firm focused on fundamental technology in wireless radio and artificial intelligence. He stated that InterDigital has "one of the most valuable portfolios" in the industry and derives the vast majority of its revenue through IP licensing. Chen noted that the company invests about half of its recurring revenue into R&D and builds partnerships with universities and other companies. He highlighted long-term licensing agreements with major customers including Apple, Samsung, Amazon, and Google, and said a recent renewal with Apple extends through 2029. Chen also discussed InterDigital's role in contributing technology to open standards for cellular technology, including 5G and future 6G, and noted that the company's AI lab in Silicon Valley works on using AI to solve fundamental problems in wireless and video. He promoted an upcoming Investor Day in New York, scheduled for September 10, 2024, which he said would be his first since joining the company three and a half years ago, and would include a deeper dive into the business and a long-term growth roadmap.
Transcript (27 segments)
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Host0:05
Welcome back to Morning Trade Live. We're going to take a little bit of a break from the intraday market action and dive into a big winner in the telecom world, up 26% on the year and almost double in the last three years. Our shares of InterDigital, ticker IDC, the CEO and president joins us from the Nasdaq market site. Liren Chen is here on the Schwab Network with us this morning. Larry, thanks for joining.
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Lawrence Chen0:30
Thank you for having me. I'm glad to be here.
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Host0:33
Tell us about your business. It's the first time you guys have been on here and the shares have been pretty amazing. And it seems like you guys are showing some pretty unique growth in your sector. I know you have a lot of patents in the telecom and digital communications world. Where do you get most of your revenue?
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Lawrence Chen0:48
Yes. Hey, Oliver, InterDigital is an independent research company. We focus on fundamental technology in wireless radio and artificial intelligence. So we create the technology. As you mentioned, we have a very large patent portfolio, but it's also one of the most valuable portfolios in our industry. Most of our patents are homegrown, which means they are created by our own scientists and inventors. And we derive the vast majority of revenue through IP licensing.
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Host1:19
It's an interesting business model that seems pretty unique in terms of publicly traded companies, research patents and then the licensing. So a lot of your revenue looks to me like it's recurring. Is that right?
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Lawrence Chen1:34
It's absolutely right, Oliver. So one of the real strong points of our business is we sign very long-term licenses with very large customers, for example, including Apple, Samsung, Amazon, Google. For example, we just signed Google this quarter. So those contracts are generally long-term and they are recurring, just like subscription-based recurring revenue.
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Host1:58
Tell me about the Google partnership. I saw that that was in the last quarter. What is your guys' relationship with them?
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Lawrence Chen2:05
Yeah, Google has been a licensee for InterDigital for a while. They had a license with us for 4G technology, which is one of the cellular technologies, and we negotiated with them. We added 5G, and we also added radio in terms of video codec technology and Wi-Fi technology. In addition, we broadened the scope of their product and their coverage. So not only the Pixel phones are now covered, but we also cover their Internet of Things devices, including the wearable device like a Fitbit.
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Host2:38
And so your team is looking at the technology and finding ways to protect it, patent it, or is it Alphabet's team? Like when you have a partner, then do you work on actually the process of protecting their own tech? Like is it Google researchers or InterDigital researchers that are primarily kind of driving that product line?
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Lawrence Chen3:02
It's InterDigital researchers. So what we do is we come up with the fundamental technology and we apply patents to protect our technology. But another really, really important aspect of our business is we actually share our technology through open standards. Our engineers are well-respected in our industry. So we lead the standard development. So part of our technology becomes the open standard for cellular technology, for example, like 5G and in the future 6G. So therefore the rest of the industry, including Google, can benefit from it. So in a sense, we are the R&D engine for the whole industry.
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Host3:42
Yeah, it's fascinating. So then is the basic premise like is your value add the people at the end of the day? Is that what's really kind of like, I mean, because you're basically it seems like whenever there's a new trend, if there's like a 5G breakthrough, then you've got a 5G lab where you put all your scientists and researchers to come up with as many applications, utilities, patents as you can. If there's a breakthrough, you get like an LLM lab. You put the minds to work. It seems like those minds are really like the real engine of the company.
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Lawrence Chen4:16
You're absolutely right. At InterDigital, we like to see the inventors as rock stars for our company. So we have some of the brightest minds in our industry, and we frankly keep on working on attracting the best minds. And we spend a lot of time training them, motivating them. So we always have the best team in our industry. So what that enables us is to keep on adding new inventions that will eventually benefit the whole industry.
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Host4:43
Does it keep your costs pretty consistent? I mean, or does that depend on the tech that you need to buy for the lab? Like how much is consistent just salary headcount and putting all those people to use? Whereas like I imagine it's pretty low CapEx or is there like any real build out of like engineering hardware laboratory materials you need for any of this stuff?
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Lawrence Chen5:11
We actually invest very heavily for the future for our company. So we invest in people, we invest in infrastructure, which includes the computing infrastructure. We frankly also invest in our ability to build and maintain and enhance our patent portfolio. On top of that, we build very strong partnerships with universities, with our partner companies to make sure our technology gets propagated throughout the industry. Just to give you a number, we actually consistently invest about half of our recurring revenue into R&D and building our patent portfolio. So that's a very high percentage.
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Host5:51
I see, okay. All right. So there is a lot of the research from, you know, perspective of like building out and testing things. So I guess that makes sense. You've got a big partnership with Apple. I mean, I think your biggest customer right now. Is that right, Liren?
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Lawrence Chen6:09
That's absolutely right. Apple has been a long-term customer for us for actually quite a while. Apple has been a licensee for us since 2007, and 2007 was, remember, before they even released the very first iPhone. So that relationship has been going on for close to 20 years now. We just renewed the agreement two years ago, you know, around this time, actually 2022, and Apple has agreed to take a license for seven years. So our current license agreement with Apple will go all the way to 2029. Again, this is just an example of how our partners value us and how our subscription-like business model is really providing a lot of stability and further growth for our company.
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Host6:54
Is that the wireless band? What is the main product or what's the main idea that Apple's paying you for?
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Lawrence Chen7:04
We have a very, very large patent portfolio and frankly, a very broad scope of technology. For example, we are in cellular technology, which obviously the iPhone uses, but we frankly also are one of the top developers for video technology. That's the video codec, the compression decompression technology. And those are exceptionally valuable because, for example, on the internet, including on mobile devices, 80% of the internet traffic is driven by video. So having what we have for the video portfolio is exceptionally valuable for partners like Apple and other players.
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Host7:42
On the AI side, what's most interesting to you, Liren? Where is your team, where is your crack team finding ideas right now? Like, is it tougher in this market? Do you have to get to the idea before Jensen's team does at Nvidia? What's that like?
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Lawrence Chen7:57
We absolutely compete against the best companies in the world for talent. Our AI lab is actually in Silicon Valley. So what we have been working on actually for a couple of decades now is to use AI to solve the fundamental problems in wireless and video. So we don't really compete on the application layer or the service layer. What we do is to make sure the fundamental technology for wireless and video works better with AI technology. And one more thing that differentiates us from most other companies is once we create the technology, we share them through open standards. So our AI development will benefit everyone else in the industry. And that's probably what differentiates us from many other players in the industry.
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Host8:45
Yeah, it's a very like pure, kind of research utility agnostic, almost just like you're the brain stem of some of the biggest industries. It's amazing that I haven't heard more about your company or your business because the chart has been incredible. The stock's been amazing. You guys only traded like 14 times forward earnings, which seems pretty wild considering the industries that you're plugged into. So we'll be paying more attention. Thanks for the introduction.
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Lawrence Chen9:14
Yeah. Can I please add one more thing, if you don't mind?
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Host9:17
Yeah.
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Lawrence Chen9:18
So next week, September 10th, next Tuesday, we will be having our Investor Day in New York. And this is actually my first Investor Day since joining the company three and a half years ago. So we will do a deeper dive of our business as well as lay out our long-term growth roadmap for our company. So I welcome the audience to either participate in person or participate virtually. And you can find the information on our IR website.
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Host9:47
Great stuff. You were at Qualcomm before for the context, and we'll definitely be keeping our eyes on the developments at next week's investor conference. I appreciate that very much, Larry. Thanks for your time.
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Lawrence Chen9:58
Thank you. I'm really glad to be here. Thanks.
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Host10:03
Absolutely. Appreciate it. Larry Chen, CEO and president, InterDigital. Pretty amazing.