Mosaid Technologies Inc. reported Thursday net profits that were cut nearly in half in the latest quarter, but its CEO expects boom times ahead as interest in patent portfolios takes off.
"Many companies are now studying how to unlock the value of their patent portfolios," said John Lindgren, president and chief executive of the Ottawa-based patent licensing firm.
"And companies such as Mosaid are attracting a new level of investor interest."
The company has also caught the idea of rival patent licensing firm Wi-LAN Inc. , which has offered $480-million for Mosaid – a price many consider too low in the current patent market.
In a call with analysts, Mr. Lindgren cited the $4.5-billion auction of 6,000 Nortel patents in early June, which fetched a per patent price of $750,000, for sparking a "re-evaluation of patents as an asset class."
The 63 per cent premium that Google Inc. recently paid for Motorola Mobility – a holder of 17,000 patents – is another example of how the market is treating patents as a more valuable investment than they were just months ago, he added.
In its first quarter financial report, Mosaid saw its profit fall to $2.6-million down from $5.1-million a year ago as it faced higher expenses – nearly $8.7-million from $6.1-million – as patent licensing and litigation costs increased sharply.
Revenue for the three months ended July 31 was down slightly to $18.3-million from $18.5-million, the company reported.
Earnings per share were also cut in half to 21 cents from 43 cents. However, earnings on an adjusted basis were $7.2-million, or 59 cents per share, lower than the previous year but well above analyst expectations of 45 cents per share.
Despite the lower earnings, Mr. Lindgren told analysts that he intended to give them a fresh appreciation for the company's value and potential, while he also reiterated his disapproval of the hostile bid from Wi-LAN for being too low.
Ottawa-based Wi-Lan has offered $38 a share in cash for Mosaid, a company in which it already owns 1.6 per cent of the stock.
"The special committee and its advisers are actively engaged in evaluating Wi-LAN's offer and the board will respond in due course," he told analysts.
"That said – I can tell you that the special committee's preliminary view is that the timing and approach of Wi-LAN's offer are highly opportunistic and that Wi-LAN's offer clearly undervalues Mosaid."
Mosaid's board of directors said earlier Thursday it will make a recommendation on Wi-LAN's hostile takeover offer by Sept. 7. Mr. Lindgren repeated Mosaid's plea to shareholders to take no action until after the board has responded formally.
Meanwhile, the company will step up its plan to expand its patent licensing programs with a goal to grow compound annual revenue by more than 20 per cent, partly by more aggressively investigating in litigation to enforce patent rights.
For its financial results, Mosaid said it had a "solid" first quarter to begin its fiscal 2012.
"We were particularly active in the courts, moving to assert our intellectual property rights by initiating patent infringement suits in the areas of semiconductor memory, power over ethernet technology, wireless communications, and cloud computing," Mr. Lindgren said.
Mosaid has about 2,800 patents covering computer chips as well as short-range wireless technology used in mobile phones, tablets and laptops, while Wi-LAN has more than 1,400 patents covering wireless technologies including short-range Wi-Fi networks.
Wi-LAN also has patents covering V-chip technology, which allows parents to block television content they believe is inappropriate.
The two companies generate most of their revenue by licensing technology rights to large telecom and computer chip makers, which have recently demonstrated that they're willing to pay hundreds of millions or even billions for patents.
Mosaid's large institutional shareholders have said Wi-LAN's offer is too low and expect it to go up at least $5, anywhere from $42 to $48 per share.
Northern Securities analyst Sameet Kanade has increased his target share price to $45, while BMO Capital Markets analyst Brian Piccioni has raised his target price to $40 from $32 based on Wi-LAN's bid and the possibility of a raised price or potential "white knight."
Mosaid has hired Barclays Capital Canada Inc. and GMP Securities as financial advisers and Davies Ward Phillips & Vineberg as legal adviser for Wi-LAN's unsolicited bid.