Bill Merritt came from within InterDigital’s legal organisation to transform the fortunes of its patent licensing operation. Now as recently appointed CEO of the company, he is intent on creating a focus in the company on the same “deal making” principles that drove the success of the licensing program. Finding the right balance between technical innovation, patent licensing and product development will be crucial, he says, as he charts the future course for a company that defies simple categorization.
Mobile Europe:
A new CEO often means a change of emphasis and a change of direction. What type of company would you say InterDigital has been and how would you like to develop it as leader of InterDigital?
Bill Merritt:
In some respects InterDigital is the same type of company as we’ve been throughout our entire existence. Twenty years ago, our focus was on digital wireless technology and that is core to all we’ve really ever done. As a result we have a lot of capabilities that are reflected in our patents and people.
In the early 1980s, we had a vision of where commercial wireless would go — which was digital – and that thinking was looking pretty far ahead. That type of thinking continues in the company. Our focus has always been on developing intellectual property for advanced wireless technologies. Early in the company’s life, we took our development concepts – which had many applications – and built proprietary wireless systems.
These were a technical success but perhaps not a market success. An example of this is fixed wireless TDMA- and CDMA-based products. In building those products, some in the industry thought that our work was exclusive to that fixed space, which isn’t the case at all.
Over the past five years, we made a conscious and systematic effort to change the perception of us as a company that developed proprietary technologies, to one of an organization that develops mainstream solutions. In one of our efforts, we spent five years developing core technology for WCDMA, including an FDD protocol stack solution which we jointly developed with Infineon. We also are developing a full HSDPA implementation and are mapping out an HSUPA solution for terminal units. We have participated extensively in the standards process for these and other wireless technologies and continue to do so. While we always had strong technical capability, we are now much better known within technical communities as a force for developing leading wireless technologies.
ME: So you are happy with the overall focus of the company, with the strategy that has been in place, but how do you think your leadership will change the delivery of that strategy?
BM: InterDigital’s strategy remains the same, which is to help shape the next mainstream wireless communications technology. The recent change in management was not a change in the strategic plan, but a desire to execute that plan better. It was also a planned move, in some respects. Because of the success of our patent licensing business, I got tapped some time ago as a likely successor to the CEO position. In May, the Board made the decision to seek higher levels of growth for the whole company, similar to the level of success generated by the patent licensing program. So I got promoted to CEO; it’s as simple as that.
Although the overall strategy is sound, there are tactical changes we will make. Among those is a higher focus on creating greater levels of profitability. Over the past few years, we have seen our cost line and revenue line increasing in lock step. I appreciate as much as anyone that as a technology development business we need to make technology bets and not always focus on the current quarter’s results. However, the goal of profitability – more so than an unfettered love of technology – needs to be the driving force behind the business.
On the product side, we must take development beyond the lab and up to the point where a customer can see it work. We have done this successfully now with HSDPA and customers are responding well. At the same time, we also need to know when a product-based technology program is not going to be profitable and get off the bus.
Another element of our strategy is to combine our IP [intellectual property] with a product offering to create higher value for our customers. We have a robust suite of products and patents in our portfolio and we’re looking at how to better leverage these offerings to customers.
ME: So how would you go about doing that as part of your business plan?
BM: Financially, I would like to see InterDigital earn a higher level of profit as we grow our revenue streams. That means not increasing staff or cost just because we signed a new deal, but leveraging our technology development across multiple customers and programs.
My emphasis on cost doesn’t come from any cash needs; the company is financially healthy — we have a solid revenue stream, we have a cash position of around $100 million and we don’t carry any debt. However, I believe that we can better leverage our capital and operational structure to enhance shareholder value. For example, we may look at changing the debt-to-equity ratio or other changes that can reduce our cost of capital, and thus increase share value.
We’ll also continue to consider new investments in internal technology development as well as external acquisitions as a way of growing the company.
ME: You recently announced the resolution of arbitration with Nokia regarding the establishment of its royalty rates under their patent license agreement with InterDigital. Do you worry that doing battle with such high profile names would get InterDigital a reputation?
BM: People with certain agendas sometimes try to label us as litigious but we are not. The fact is we pursued resolution of the Nokia matter in a controlled manner with the sole objective of finding a sensible business outcome. Nokia has taken a different approach and has brought multiple actions against us. In all of our licensing dealings, our approach has always been to resolve business matters in a reasonable way. Sometimes you need to go into litigation but it’s not the preferred route. In our business, there’s always going to be some controversy, and the fact we are able to stand up to anybody serves us well. Nokia took a lot of shots and we did fine. Sometimes people underestimate InterDigital.
ME: So that experience wouldn’t put you off other external relationships and continuing to build partnerships as you deliver your core strategy for the business?
BM: I think the fact that InterDigital has built relationships with Infineon, General Dynamics, Philips and others shows that we are an effective partner. Doing so is a very efficient way to expand the company’s competencies rather than trying to grow capabilities on our own. As far as relationships go, we have had a thriving patent licensing programme, with a lot of opportunities
with the companies we know through
those agreements. We have a good reputation in the industry and we have always tended to conduct business in a business-like manner.
ME: In terms of technology, what do you think represent good opportunities for this mix of licensing and productisation, of in-house development and of partnership?
BM: There are a number of different avenues that make sense for the company. The first is HSDPA and the whole long term evolution of cellular — life beyond 3G. Both really play to our core strength.
The next area where we have done a lot of work is in convergence and the interworking between different wireless access technologies. Increasingly it will be necessary for operators to be able to offer services in different radio access network environments, with more rigid quality of service and other requirements. We’ve had a fair amount of involvement there and it is a rich area for future development.
Then there are new spaces. We are looking at concepts that address what a consumer’s going to want in the future, and what’s the minimum technology you need to get the job done. For instance, back in the early 1990s we were adamant that narrowband CDMA wasn’t enough and believed we had to go further in bandwidth. We were right.
Next we can look at things like advanced mesh networking or the digital home; that’s the fun part of the job. You place a bet on developing technologies that may be pretty far out in time and help guide the development as the market emerges.
ME: So the aim is to reduce the risk of exposure to just one technology area?
BM: That’s right. We have diversified our technology development to technology areas ranging from 3G cellular core technologies to interference management, as well as other areas. If those technologies become embedded in WCDMA terminals, that gives us more opportunity.
At the end of the day, we succeed because we are a very strong systems house. We are not just a software company — we understand how the whole system works and interacts. An example is our HSDPA solution. We saw that to support the higher data requirements in the standards, you would need to develop an advanced receiver design. We employed our advanced receiver design which is scaleable with HSUPA in mind. Our solution can be migrated to HSUPA without the need to tear it out and redo the whole thing. And while you do need to get to market fast, you also need to produce solutions that have legs, and can be used for some time. Our systems capabilities also make us a very valuable contributor in the standards bodies. The technical contributions we make solve real problems.
ME: To what extent do your relationships with mobile operators and other players influence your direction?
BM: Having connections at all points in the value chain is fundamental to InterDigital’s business. We have good dialogue with operators, equipment producers, semiconductor suppliers and now, of equal importance, the people who are developing the applications. These relationships are very important to us because not only are they are our direct and indirect customers, they provide valuable insights into the anticipated needs of their ultimate customers and what technologies will most effectively help them make good on their business plan. Their business issues and technology needs certainly influence how we shape our technology roadmap and direction.
ME: Perhaps one of the challenges you face is to define the company in a recognizable way to your investors and the market.
BM: Amongst OEMs and ODMs and in the semiconductor space, I think InterDigital is very well known. For those people, our job is to reinforce that we are a well-rounded technology company with good design capabilities and solid financial performance. I think we are less understood in financial communities because we don’t fit easily within any sort of defined box. Perhaps this is because our performance against our business model is continuing to evolve; we have multiple ways of monetising our technology assets and are continuing to make progress in building the multiple revenue streams that Wall Street can value. It will take some time, but I think we are making the company more understandable and will continue to do so going forward.
“The number of Linux-oriented initiatives recently seen in the mobile industry indicates that Linux will be a key technology in the next generation of netbooks, media tablets, and other mobile devices,” says senior analyst Victoria Fodale.
Despite the growing number of Linux distributions in the mobile market, Linux has a unified base of upstream components, most notably the Linux kernel, says Fodale.
Multiple application ecosystems – provided by Google’s Android and Chrome OSs, MeeGo, and Palm’s webOS – ride on top of the unified Linux components. This model enables companies to share the cost of research and development, yet differentiate their offerings in the marketplace.
The new ABI Research study, “Linux for Mobile Devices”, is aid to examine the key market issues in the Linux ecosystem, as well as the technology drivers within the mobile device segment. It highlights the strengths and weakness of each mobile Linux platform including architecture, development, applications, and governance models. Detailed regional forecasts of shipments by each Linux-enabled platform are included.
The study is said to only cover the mobile computing device segment; smartphones are covered in the firm’s “Mobile Linux” report.