{"id":1442,"date":"2011-01-15T19:07:13","date_gmt":"2011-01-16T00:07:13","guid":{"rendered":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=1442"},"modified":"2011-01-15T19:07:13","modified_gmt":"2011-01-16T00:07:13","slug":"not-a-quick-study","status":"publish","type":"post","link":"https:\/\/www.cusjc.ca\/ottawainsight\/?p=1442","title":{"rendered":"Not a quick study"},"content":{"rendered":"

In the last year MOSAID Technologies Inc. (TSX: MSD) has developed an incredibly lucrative business model.\u00a0 Its success and long term financial forecasting in the tech sector are unheard of. The only reason shares aren\u2019t climbing? Analysts say not enough investors have taken the time to understand the complex patent firm. <\/span><\/p>\n

MOSAID Technologies Inc. is an intellectual property and patent licensing company in Ottawa,\u00a0 one that focuses on the licensing and development of semiconductor memory technology.<\/p>\n

With no long-term debt obligations and a stable stock price this year, the media have been positive about the company\u2019s share price.<\/p>\n

In its early days, MOSAID was in the business of inventing advanced memory chips, most notably a circuit technology that is used by Dynamic Random Access Memory products (or DRAM). The technology is now found in most computers.<\/p>\n

Today, MOSAID has a portfolio that includes about 2500 patents across a number of technology sub-sectors. While DRAM and other memory chip patents are still\u00a0 its primary focus, MOSAID also has patents for flash memory, wireless technologies, Wi-Fi and a new product called \u201cPower Over Ethernet\u201d.<\/p>\n

Lead by a seven-member board of directors and a new CEO, John Lindgren, the company has posted large revenue increases over the last two quarters (15 per cent in each quarter) and is on track to meet targets for 2011.<\/p>\n

MOSAID\u2019s net income was also up in their latest quarterly financial report as well to $6.5 million from $5.0 million in the same quarter last year.<\/p>\n

Positive coverage<\/span><\/p>\n

MOSAID\u2019s stock closed at a healthy $26.55 a share on December 2, 2010 and the company continues to pay dividends of about 25 cents a share quarterly.<\/p>\n

With no long-term debt obligations and a stable stock price this year, the media have been positive about the company\u2019s share price.<\/p>\n

Michael Salter, the senior director of investor relations and corporate communications explained the company\u2019s main revenue source comes from a large number of existing licensing agreements with Japanese multinationals for their DRAM patents.<\/p>\n

\u201cYou kind of think of that as providing a revenue floor, or replacing dollar for dollar,\u201d Salter says.<\/p>\n

Usually it\u2019s a much more volatile boom to bust environment that a company has to thrive in. Once MOSAID signs these deals, they just sort of sit back.<\/p>\n

Todd Coupland, an analyst specializing in the high-tech sector with CIBC World Markets, says that revenue stream is leading to exemplary results for the company. \u201cTheir licensing program is very robust and successful. Over the last 10 years they\u2019ve signed up 100 per cent of the market. The company is in terrific shape.\u201d<\/p>\n

Coupland and Salter don\u2019t see any signs of slowing in the future. MOSAID\u2019s long-term licensing agreements typically last five to six years. This gives the company a good ability to forecast its financials up to a year in advance, eliminating a lot of the risk typically associated with high-tech companies.<\/p>\n

When yearly financial forecasting is done, a large percentage of revenue is accounted for by fixed payment patent licenses they already have in hand. \u201cWhen we start a fiscal year, 65 per cent of our estimated revenues are already booked,\u201d Salter said.<\/p>\n

Coupland said this is almost unheard of in the tech sector, \u201cUsually it\u2019s a much more volatile boom to bust environment that a company has to thrive in. Once MOSAID signs these deals, they just sort of sit back.\u201d<\/p>\n

MOSAID is now looking to their wireless licensing programs to drive growth higher and so far, it\u2019s working.<\/p>\n

In October 2010 MOSAID negotiated a new patent licensing agreement with Texas Instruments Inc. for a wireless technology that will be used in all of its Wi-Fi devices. This represents a shift in MOSAID\u2019s corporate strategy from licensing to semiconductor vendors rather than system companies.<\/p>\n

The shift has proved profitable though. \u201cOn the revenue side, the new Texas Instrument deal was instrumental in the 15 per cent increase in revenues [in Q2 2011],\u201d Salter said.<\/p>\n

More negotiations on the horizon<\/span><\/p>\n

Salter also confirmed\u00a0 MOSAID is in the process of negotiating with a number of other chip vendors.<\/p>\n

At the same time, the company is in litigation with one of the world\u2019s biggest technology corporations, CISCO Systems Inc. CISCO filed a complaint against MOSAID in anticipation of a suit\u00a0 over Power Over Ethernet patents that CISCO hopes to use. CISCO hopes to establish that its technologies that utilize Power Over Ethernet patents don\u2019t infringe on MOSAID\u2019s patent portfolio.<\/p>\n

Power over Ethernet offers power and internet over one cable, and could be a massive source of income for MOSAID in the future.<\/p>\n

The majority of their revenue is coming from memory and wireless. The Power over Ethernet is quite an early market for them.<\/p>\n

Salter said the litigation shouldn\u2019t dissuade potential investors, \u201cWe actually budget $5 to 10 million dollars per year for litigation costs, so we see litigation as a normal occurrence.\u201d<\/p>\n

He added MOSAID has settled (reached an agreement out of court) 100 per cent of its cases, and allocates a large amount of money to legal costs each year.<\/p>\n

Coupland explained that while MOSAID has a lot to gain,\u00a0 it doesn\u2019t have much to lose, and the result likely won\u2019t have a large financial impact on the company. \u201cMOSAID isn\u2019t making any products that infringe on Cisco patents. The question is, is Cisco making products that infringe on MOSAID\u2019s products?\u201d<\/p>\n

Either way, Coupland, like Salter, is not concerned, \u201cI don\u2019t think it matters that much. The majority of their revenue is coming from memory and wireless. The Power over Ethernet is quite an early market for them.\u201d<\/p>\n

\u201cInvestors have not built in expectations for that into the stock price, and I haven\u2019t either.\u201d<\/p>\n

Diversification calms investors<\/span><\/p>\n

Regardless of the litigation, the company represents a fairly stable investment.<\/p>\n

More stable than three years ago, when Lindgren took over from 13-year CEO George Cwynar. Cynwar was ousted as part of a deal with shareholders who thought the company was underperforming. At the time MOSAID\u2019s business was very concentrated, with a few very large licenses. The uncertainty of renegotiating large licensing agreements with companies like Samsung was a risk for investors.<\/p>\n

But Coupland said since Lindgren has taken over, MOSAID has diversified and is \u201ca stronger investment today than it would have been three years ago.\u201d It has also been successful in renegotiating long-standing license agreements.<\/p>\n

The only problem, Coupland said, is that the investment may be difficult for investors to understand because of the complex nature of what MOSAID does. Not only that, but investors will have difficulty comparing MOSAID to other companies. \u201cYou can compare RIM with Apple and the iPhone, but with a patent licensing company, you either have it or you do not.\u201d<\/p>\n

But he added that it may be worth investor\u2019s while to take a closer look at what the company does. \u201cThey met or exceed expectations for three years. If investors are willing to take the time to understand it, it is a very lucrative business model,\u201d he added.<\/p>\n

Over all, with no long term debt obligations, a healthy dividend and revenue increases expected to continue, MOSAID is a good investment opportunity for individuals looking to the tech sector.<\/p>\n","protected":false},"excerpt":{"rendered":"

In the last year MOSAID Technologies Inc. (TSX: MSD) has developed an incredibly lucrative business model.\u00a0 Its success and long<\/p>\n","protected":false},"author":193,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1442","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/1442","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/users\/193"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1442"}],"version-history":[{"count":9,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/1442\/revisions"}],"predecessor-version":[{"id":1451,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/1442\/revisions\/1451"}],"wp:attachment":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1442"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1442"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1442"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}