The Value of Nortel’s LTE Patents?

By Mark Evans | Published: July 2, 2009

Nortel may be trying to sell its LTE R&D unit to Nokia Siemens but there’s a lot of chatter about what’s not part of the deal: some LTE patents.

The talk was triggered by a recent estimate from JP Morgan Chase analyst Ehud Gelblum could be worth as much as $2.9-billion in terms of royalty payments.

According to LightReading, Gelblum calculates that “if Nortel (or whoever ends up owning the IPR) collects 1% of every relevant LTE device sale price in the coming years (based on the assumption that LTE has a lifespan of 15 years and with a 10% discount rate), the IPR is worth just over $2.9 billion.”

The $2.9-billion, however, was poo-pooed by Stuart Carlaw, VIP and chief research officer with ABI Research. He told Telecoms.com that the figure is “somewhat overblown” because he believes Gelblum’s assumption is flawed.

“This is disproportionate to their patent holdings and cannot be seen as fair and reasonable. I doubt any other single vendor will be looking for this type of return – even Qualcomm,” Carlaw told Telecoms.com.

Putting aside who might be right, the reality is the LTE patents may have a lot of value – just as Nortel’s cash-cow CDMA wireless business has a lot of value that Nokia is getting for a song.

This may explain why some investors may be starting to look at Nortel as a fertile opportunity to acquire some attractive assets stuck within a struggling business.

Update: The Ottawa Citizen has a story looking at the value of Nortel’s business units on the block.

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  • joremero

    The original article did say that even though it could fetch as much as $2.9B in the long run, it was most probably south of $1B. The analyst tried to give a more realistic estimate and it seems kind of dumb to me for someone else to say: hey, you are wrong, it's not worth $2.9B, when the JPM Analyst said that in the first place.

    Normally, companies don't pay royalties to each other because they kind of cancel each other out. Let's say ALU uses NT patents and NT uses ALU patents and everyone is happy, But if NT will not be using ALU patents anymore, NT or whoever gets to keep the IPR will be able to charge for the use of its patents. In this case, NT IPR owner would not collect from ALU or Ericsson, etc, but from the monies earned from selling LTE devices.

  • TongueInCheek

    WiLAN did this a few years back, where they exited the Wireless Equipment business and are now a Patent Holder and Licensing business. Nortel could do something similar by retaining all of their IP, regardless of business unit.

  • How_long

    Could it be an ogoing revenue stream to pay off Nortel's debts.

  • joremero

    I believe it could, but seeing how they handle things, they will probably just sell it cheap, maybe south of $500M to a private equity firm

  • joremero

    I believe NT still has the UMTS patents (licensed them to ALU), not sure why they did with them though

  • protosphere

    Enterprise Potential price: $600 million:
    Sales: About $2.6 billion in 2008. Sales plunged 45 per cent to $395 million and operating margin losses jumped 54 per cent to $128 million

    LG Nortel Potential price: $250 million:
    Sales: $188 million U.S. in March quarter, down 66 per cent.
    Operating margin: $48 million, down 72 per cent.

    Metropolitan Ethernet Networks (MENs) Potential price: $600 million
    Sales: About $1.8 billion in 2008. …sales dropping 10 per cent
    On the auction block for months and …no buyers.

    Carrier Networks Potential Price: $300 million to $400 million.
    Sales: About $4.9 billion in 2008. Revenues of division fell 32 per cent to $737 million in first quarter and operating profit margins plunged 71 per cent to $42 million.

    The total of above if sold for 1.850B (+ 650M from NSN) = 2.5B?

    2008 Sales 2.6+.188+1.8+ 4.9 = $9.488B

    with current decline (and note still declining)
    -45%+-66%+-10%+-32%
    Where decline = 1.3+ .124+.18+1.568 = $3.172B

    Hence $9.488B – $3.172B = $6.3B Trent so far but tanking revenues (count on a lot less for 2009 in the trend).

    Note: largest area Carrier $4.9B sales had operating margins decline 71%

    Even around $6B sales that are tanking as we await Q2 rate of decline
    .. longer they stall, the lower the units are worth…

    “Some assets are unlikely to sell, and will have to be liquidated.”

    Who would gamble they can revive decline at any price and what is anything worth that loses money. Below zero?

  • protosphere

    Alcatel-Lucent bought their UMTS for $300M a while back.

    I do not know why NSN is interested in Nortel's LTE patents when Alcatel is in the drivers seat with Nortel's customers. The greater corker is interest in declining CDMA in gavor of GSM which is anticipated to transition out to LTE in the FUTURE.

    So few and merging customers accounting for such a great percentage of their business, and competition for a shrinking pie just catalyzes the risk in my view. A perfect recipe for the perfect storm to be swamped in the not too distant future.

  • protosphere

    They are selling everything as soon as they can is the truth of the matter.

    Their patents are quickly becoming prehistoric in this rapidly changing technology so what would they license out?

  • joremero

    You don't understand that NSN wants Nortel CDMA customers (translate that to Verizon) ??????????

    NSN didn't say whether or not was interested in Nortel's LTE patents, but Nortel is interested in keeping them, probably to sell them separately.

  • less

    lol – and on the other side are a buncha sad sack ex-Nortel employees who can't figure out how to juggle a paltry $1,200/month.

  • exnt_x_2

    What the heck's wrong with $1,200 a month?

    It's certainly enough to live on, as long as you don't have a house, a couple of cars, kids, a wife, an ex-wife, alimony and child support. There's probably more.

    Thing is, I know a lot of people who manage on $1,200 a month. They have no choice. It's all about expectations, isn't it?

  • TongueInCheek

    Your bashing has reached the COMICAL stage. Your bash Nortel's LTE portfolio suggesting that it is many years away from any real revenues. Now you're bashing their patents because technology is changing rapidly.

    Which one is it?

    Do you have any understanding as to the underlying technologies of LTE, how they are used, the patents granted and the patent protection period? I highly doubt it.

    Instead, you create any crap you can to bash, and have shown in your post above that being two-faced is part of your agenda. Clearly you want it both ways, but now you're looking like a fool, which is an absolute riot.

  • Nortelinio

    Who believes analysts anyway?

  • less

    lol – I too (re-) learned to manage. Once my income left, a lot of costly items went with it, back to the Mike Zs they knew who have that cash.

  • protosphere

    http://www.cn-c114.net/583/a421346.html

    2009/6/23 11:09

    the impact of these assets on NSN's global positioning isn't likely to be game-changing. (NSN is known to be short of intellectual property in OFDMA/MIMO, some of which is key to success in LTE, Nortel's strength)

    Alcatel-Lucent and Ericsson AB (Nasdaq: ERIC) have emerged as by far the biggest 3G and 4G wireless infrastructure vendors in the U.S. market. They are the exclusive W-CDMA radio access network (RAN) suppliers to AT&T Inc. (NYSE: T) and the exclusive LTE suppliers to Verizon Wireless . Ericsson is the predominant W-CDMA supplier to T-Mobile USA , and Alcatel-Lucent is the largest CDMA supplier to both Verizon Wireless and Sprint Nextel Corp. (NYSE: S). In the major 3G and 4G technologies, the U.S. is Ericsson and Alcatel-Lucent country.

    The acid test of this acquisition's success or failure will be the volume of new 3G or LTE contracts that NSN is able to secure in North America over the next three to four years. Having missed out on the first round with the major U.S. carriers, NSN will unquestionably be in a much better position to secure 3G and LTE business once it has Nortel's assets under its belt.

    http://www.fiercewireless.com/story/embargoed-v…

    Alcatel-Lucent, Ericsson win Verizon LTE deal
    February 18, 2009

    Verizon Communications' executive vice president and CTO Dick Lynch named the key vendors for the company's LTE network deployment. Ericsson and Alcatel-Lucent scored deals to be the primary infrastructure vendors for the radio access network. In addition, Alcatel-Lucent and Nokia Siemens will be the key suppliers for the IMS network that will enable rich multimedia applications. Finally, the enhanced packet core will be provided by Alcatel-Lucent, Ericsson and Starent Networks.

  • protosphere

    Instead of personally attacking when you lose an argument yet again, simply answer my question, which patents?

    Which patents do you speculate are being licensed out TongeInCheeks? Name them. NSN is acquiring even MIMO…not licensing it.

  • protosphere

    Also, most simply out, Nortel isn't interested in keeping a single thing.

    It is struggling to even liquidate, to sell its rapidly declining assets for their growing creditors, and this includes any patents or anything nailed down or not this go round. It's over for Nortel as we see IF they can dump anything left over in their catalyzed death spiral to bust.

    Not that they might be worth much either over this short tanking duration for this insolvent mother of all dogs struggling to liquidate than maintain licenses or patents others finance to gamble or that they can do anything with them amid fierce competition as the reiterating bottom line.

    Nortel will be gone with no patents, licenses, and is struggling to liquidating everything they can after swindling investors, employees, and soon to be growing list of ex-creditors.

    What is so hard to understand about this like TongeInCheeks maintaining the I believe torch like Monty Pythons Black Knight to itsd dying days after so many years already.

  • protosphere

    Analysts also said to “hold” this turd over the last half decade… did you?

  • painful_truth

    There is a high likelihood these patents have value. I can only speculate but to extract value these patents must find themsleves headed to a live network in order to deliver a credible value. I don't see the other vendors (Ericsson, ALU etc…) paying for Nortel patents for thier products/customers. They will try to bridge the development advantage gap themselves.

    So it would be NSN who would be at the Nortel IPR mercy it seems……

  • TongueInCheek

    Here's a statement on Nortel Patents:

    “As of December 31, 2007, Nortel had approximately 3,650 US patents and approximately 1,650 patents in other countries. It has been reported by industry analyst IFI Plenum that, in 2006, Nortel ranked 69th in terms of number of patents granted by the U.S. Patent & Trademark Office. Nortel has ranked in the top 70 in terms of number of granted U.S. patents since 1998.

    Nortel's patent portfolio extends across Wireline, Wireless, Datacom, Enterprise and Optical technologies and services. Nortel has received patents in the U.S. and elsewhere covering standards-essential, standards-related and other fundamental and core solutions, including patents directed to CDMA, UMTS, 3GPP, 3GPP2, GSM, OFDM/MIMO, LTE, ATM, MPLS, GMPLS, Ethernet, IEEE 802.3, NAT, VoIP, SONET, RPR, GFP, DOCSIS, IMS, Call-Waiting Caller ID and many other areas.

    NORTEL LTE LICENSING STATEMENT
    For more than 10 years, Nortel has been a key innovator in Orthogonal Frequency Division Multiplexing (OFDM), Multiple Input Multiple Output (MIMO), Adaptive Modulation and Coding, Space Time Coding, Channel Coding, Automatic Retransmission Request, OFDM Sub-channel Mapping, Hand-off and Frame Structure, and MIMO Transmitter/Receive Architecture – the radio access technologies at the heart of 3GPP Long Term Evolution (LTE). Nortel has developed fundamental and valuable patented and patent pending technologies in these fields. Nortel's Research & Development (R&D) efforts and advancements have allowed it to be an early and key contributor to the development of the LTE standard and will enable it to be a major provider of LTE solutions in the market.

    Nortel believes that pioneers and innovators should be entitled to a reasonable return on their investment in R&D. Patent rights are an incentive that reward and encourage the progress of innovation. Nortel supports licensing patents essential to the LTE standard on fair, reasonable and non-discriminatory (FRAND) terms, subject to reciprocity. Nortel believes that compensation provided through licensing standards essential patent claims under FRAND should be based on the significance of the patented technology in the standard and the value of the patented technology to the licensed implementation.”

    I have seen nothing yet that shows Nortel selling any of their patents.

  • joremero

    That is a different story….

  • joremero

    COMICAL would imply that proto is funny, while he is at most phony and pathetic

  • joremero

    You cannot believe everything but you cannot ignore everything

  • joremero

    no, that's not the way it works in the case of LTE. NT or whoever ends up with their IPR will charge (or intends to charge) 1% for every LTE handset sold, so they are not planning to charge the vendors of LTE network equipment.

  • protosphere

    They are selling the farm to liquidate and they aren't selling their intellectual property and patents with them?

    Do they have to specifically indicate this?

    Here it is evident:
    http://www.cn-c114.net/583/a421346.html

    “NSN is known to be short of intellectual property in OFDMA/MIMO, some of which is key to success in LTE, Nortel's strength”

    Ok, never mind their many patents for a second as this was not the issue, which patents do you feel they will license out? You have not answered this yet than boast their history.

    Do you feel they will do this before or after Nortel is gone or are you still convinced they will restructure.

    You seem to be relentlessly trying to find a future anywhere even in light of EVERYTHING coming to an abrupt halt in the not too distant future whether they can sell their rapidly depreciating assets or not.

    Let me ask you another question to stress a more pressing point than the competition to the patents dumped, since this one eludes you. What do you try and think will happen to any remaining patents when Nortel ceases to exist to allow you room to enlighten us? How contemporary will they remain to maintain any value. Where do they lead for others not to trump them, etc… get my point yet?

  • broadbandbill

    “In the hands of a fool a diamond is just another shiny rock” – a Macedonian proverb…–bb

  • scalppeeler

    Everything will sell. At least so far as enterprise, optical and LG is concerned.
    CDMA sold without LTE patents and CDMA is a dying technology. The optical, LG and enterprise platforms are not outdated like cdma. They will sell. Ones that won't sell and be rolled up into an executioner holding cell are ones that are already doing very poorly, have no market share or are controlled outside of North America.

  • scalppeeler

    New immigrants can manage on 1200/month. They get government subsidies, welfare supplementation, habitat for humanity and still manage to have large families.
    They don't have much else than a home and food but they'll settle for less.

  • zeroman

    sounds perfect for Z. He should know this quite well since nortel to him is just another shiny rock he threw away.

    he is a QUITTER.

  • broadbandbill

    He's not a quitter; just another industrial engineer trying to operate in the age of innovation capitalism…–bb

  • exnt_x_2

    “They don't have much else than a home and food …”

    This is an honest question. What more is there?

  • exnt_x_2

    … and on the other side are a buncha sad sack ex-Nortel employees who can't figure out how to juggle a paltry $1,200/month.

    The funny thing is, they are probably the inventors of these very valuable patents who'll never see a penny in royalties because they signed their ownership away.

    Nortel screwed you coming and going.

    Never give something away.

  • scalppeeler

    If you are a North American and have generations of family going back who have resided in North America here is what “more” there is
    =====================================
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    Keep up with the joneses.
    Vacations.
    Holidays.
    Nice Cars.
    Savings
    Money for your kids education.
    Nice house with good property.
    Clothes, Clothes and more Clothes.
    Specialty items.

    There's your “more”. A partial list.

  • exnt_x_2

    Well, thank God that lot's gone.

  • exnt_x_2

    Ouch. Sounds like there was more than one.

    Women are like that.

  • painful_truth

    Very interesting. So worldwide a governing body will track how many handsets are sold, and Nortel will get x % of the total number of worldwide handsets? Or will the serving carrier pay Nortel 1% for the handsets they sell on Nortel networks?

  • yes4aapl

    Talking about billions in Nortel's LTE IPR is hot air and pure BS
    Nortel's used less than $500 mil for LTE development so far.
    LTE in that shape and at this time is just buzzword and still in the early stages. Who ever takes it from Nortel has to invest another $1-2 bill in it.
    That was why Nortel gave up on the other 4G technologies first and the LTE is the last nail to the 4G at Nortel.
    Let's see. I am the stupid guy so what smart and educated teams of engineers know about Nortel's LTE?
    Do they believe all the BS written in the articles publicly available and paid by Nortel?
    There are specialized companies to assess real value of Nortel's LTE IPR.
    Their reports are available for $5-10 k each.

  • less

    Yeah. Manage to get severance but spend it on attorneys to avoidf a full-blown Nortel at home. Ts,…

  • protosphere

    Patents are worth something to who ever maintains the Intellectual Property Rights. An asset worth around 63M a year according to the analyst over the next 10 to 15 years once LTE starts moving.

    In all fairness to you, I was incorrect thinking they sold ALL of their LTE patents and intellectual property to NSN.

  • protosphere

    Patents are worth something to who ever maintains the Intellectual Property Rights. An asset worth around 63M a year according to the analyst over the next 10 to 15 years once LTE starts moving.

    In all fairness to you, I was incorrect thinking they sold ALL of their LTE patents and intellectual property to NSN.

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