What About AlcaLu's Patents?

If the Nortel Networks Ltd. patents were worth US$4.5 billion, what about the old Bell Labs patents?

Granted, the winning bid for Nortel's remaining patents, as announced Thursday night, might have been bumped upwards by fear. The six companies that allied for the bid were keeping the patents out of the hands of Google (Nasdaq: GOOG) and Huawei Technologies Co. Ltd. And they had to battle back against tactics such as Google's reported bid of, essentially, "pi" billion. (See Nortel Sells Patents for $4.5B.)

But $4.5 billion was a lot more than expected. What if you interpret Thursday's results as a sign that mobile-networking patents are more valuable than they're given credit for?

Simon Leopold, an analyst with Morgan Keegan & Company Inc. , took that idea and ran some calculations on Alcatel-Lucent (NYSE: ALU), which of course owns the former Bell Labs.

"Patents can be valuable, and we argue that the market has not reflected this," Leopold wrote in a note published Friday.

Now, this is a thought exercise, so bear with us. AlcaLu's patent stash numbers around 27,000, so if you assume every patent in the world is equally valued (yes, we know! let it go!), Nortel's $4.5 billion sale implies AlcaLu is sitting on more than $20 billion in patents.

AlcaLu's total valuation is more like $13 billion, so obviously, the market isn't thinking this way.

What if we just assume AlcaLu's patents are worth $4.5 billion -- an enormous discount to the price Nortel got -- and tack that onto today's valuation? You come up with a new valuation of around $7.91 per share, Leopold calculates -- and that's still well off from the $9.54-per-share that he thinks is reasonable.

Bottom line: Patents do have value, and Leopold suspects that AlcaLu's aren't given enough credit.

Leopold's note also took a look at Motorola Mobility LLC , which owns around 24,000 patents. He noted that if they're half as valuable as Nortel's, then they're worth about $7 per share, for a company trading at $23 per share. — Craig Matsumoto, West Coast Editor, Light Reading

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digits 12/5/2012 | 5:00:10 PM
re: What About AlcaLu's Patents?

So there might be a 'book' value to those patents, but what sort of revenues do those patents generate for Alcatel-Lucent each year?


Not nearly as much as the company would like... Wringing some value from the patent portfolio was, I recall, one of Pat Russo's missions when she was still at the helm, but whether anything ever got off the ground or not is another matter.


It would certainly be interestintg to know what carrying value a company such as AlcaLu puts on its patent portfolio and whether it actually generates any meaninghful income from its IPR each year.

Vishnu Goel 12/5/2012 | 5:00:08 PM
re: What About AlcaLu's Patents?

Usually the "monetisation" of patents and other IP assets is done by forming a separate entity and is held by the parent company.These assets are quite "malleable" and the time value is important.Many of the assets may have become less relevant to current market environment and technology situation! Also the ratio or relation to the market cap loses significance at times.

yarn 12/5/2012 | 5:00:08 PM
re: What About AlcaLu's Patents?

Better to have a patent and not use it than to use a patent and not have it.


rahat.hussain 12/5/2012 | 5:00:07 PM
re: What About AlcaLu's Patents?

this is so bogus, i can't pick myself off the floor after lmaorotf. if you believe in the efficiency of the markets, then the market has already taken this value into account and post-such-valuation, alu is valued at $13b! (does simon think he just figured out what value the market assigns to the ip portfolio - after a nortel patent sale?!)


odo <- who marvels at some analysts and their biases

obaut 12/5/2012 | 5:00:07 PM
re: What About AlcaLu's Patents?

In case of patents protecting an implemented/deployed technology there often is plenty of revenue (and in particular, profit) enabled by said patents, not thru licensing or infringement damage recovery, but thru more competitive products/services, and consequently greater market share and/or profit margins, that the IP rights in question allow for the owner of the IP.

Commanding market position based on superior, patented technology, is usually the primary mode of monetizing patents, even though in this mode there would not be any revenue from IPR reported in the income statement.

AUenROD 12/5/2012 | 5:00:06 PM
re: What About AlcaLu's Patents?

Craig-  Your logic doesn't hold up.  AlcaLu may hold 27,000 patents but what is the age of each patent?  Patents are only good for 20 years so the value of each has to be discounted by its age.  My impression is that most of the stuff in the AlcaLu portfolio would tend to be older.  They haven't been an innovative powerhouse lately.

Pete Baldwin 12/5/2012 | 5:00:04 PM
re: What About AlcaLu's Patents?

Odo - Yep, I understand. Simon Leopold's thesis for some time, IIRC, has been that AlcaLu is undervalued by Wall Street, partly because of the pension overhang, and partly because of reputation.

He might have a point; a lot of the goodness on the IP and optical sides is esoteric stuff that doesn't get the attention of wireless.

Gabriel Brown 12/5/2012 | 5:00:03 PM
re: What About AlcaLu's Patents?

Wireless generates good licensing revenue for Qualcomm and Ericsson (and I think Nokia as well). Wonder if there are similar examples in optical and IP? 

I think that was part of Ray's point earlier in the thread. What revenue is generated from licensing patents?

Pete Baldwin 12/5/2012 | 5:00:03 PM
re: What About AlcaLu's Patents?

AUenROD -- Yes, yes, yes. I know. I tried to drop a couple of hints in the article that the math was meant to be taken rather lightly.

The 27,000 patents include the transistor, for instance - monetarily worthless today.

The point of the analysis was that $4.5B is a lot more than anybody expected Nortel's patents to go for.  The price was inflated by Google's presence, no doubt.  But it opens the question of whether AlcaLu and Motorola Mobility should get more credit for the technology they own.

shygye75 12/5/2012 | 5:00:02 PM
re: What About AlcaLu's Patents?

It's not only that patents can be "worthless" in that they generate little or no revenue -- they also can have a negative impact on revenue because of the costs involved in maintaining or renewing those patents. While those costs may be fairly low for a single patent, when you have tens of thousands of patents, those fees mount up. Companies like UBM's TechInsights are doing some brisk business offering IP (as in Intellectual Property) maintenance services to patent-addled companies. A big part of that service involves combing through the library of owned patents to identify and eliminate the nonproductive ones. So evaluating a patent portfolio simply on the number of patents held isn't a strong way to assess value.

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