Openwave licenses its patents to Microsoft

In a press release dated November 03, Openwave has announced its 1Q12 results and a licensing agreement with Microsoft in a separate release.

Openwave has had quite a momentous summer , between the unraveling of its relationship with Juniper, the re-purchase of its patent portfolio sold to Myriad group, and the replacement of its CEO (here, here and here). Never a dull moment. Having said that, the portfolio of patents that Openwave re-appropriated is a good representation of the pioneering position Openwave had in the industry in the 90's, with many seminal patents in mobile internet and mobile browsing. It was a good move to get them back, from a company valuation standpoint.

OPENWAVE SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
(In thousands, except per share data)
							Three Months Ended
							September 30,						June 30,						September 30,
								2011						2011						2010
Revenues:
	License						$	9,914					$	10,273					$	12,332
	Maintenance and support							10,671						10,677						13,993
	Services							16,790						14,255						11,203
	Patents							15,021						10						4,000
		Total revenues						52,396						35,215						41,528

While the company results for this quarter seem, at first glance, positive, they actually tell an interesting story. License revenues are still decreasing, (quarter to quarter and year to year), maintenance and support flat vs. last quarter and decreasing vs last year indicate an aging slowly decreasing customer base. The steady increase in services revenues, together with the decrease in license would tend to indicate that the company is milking customs development and change request opportunities, while customers are hesitating investing in the new product range.

Operating Expenses:
	Research and development							9,348						9,836						11,430
	Sales and marketing							8,737						11,509						10,821
	General and administrative							7,786						7,167						6,612
	Restructuring and other related costs							5,072						524						708
		Total operating expenses						30,943						29,036						29,571

Cost of revenue is flat-ish, with the notable exception of cost of services, indicating further the custom development aspect. OPEX remains on par vs. last quarter, despite a $5m restructuring charge, mostly financed by lower marketing and sales expenses.

What stands out, is that Openwave manages to turn a $3m profit in this quarter. It is due to the licensing agreement with Microsoft, whereby they are licensing Openwave's entire portfolio of 200+ patents. Patents revenue for this quarter were $15m+.
It is a good operation for Openwave, to license its portfolio to a presumably non -competitor in the infrastructure space. It brings revenue, maybe some more significant strategic tie-ins in the long term. Unfortunately it does little to Openwave's capacity to recapture market share.
For Microsoft, it is an interesting move. I suspect many of the patents will be quite liquid, when it comes to the next round of litigation. Interested to see how Nokia/Microsoft/Openwave can take on Apple and Google for the mobile internet supremacy.

Openwave fights back

A day after Openwave announced it has come to an agreement with Myriad group to settle their patent dispute, Openwave files for legal action against Apple and RIM.


If you remember, Openwave invented most of the technology around the mobile internet and browsing on a phone. Back in the days, it was called WAP. The user experience was poor (monochrome, slow, text based browsing) but was the foundation for today's Smartphones and tablets' success.
Openwave was then the uncontested market leader in the growing browsing gateway business and was licensing its technology to most handset makers, along with a WAP browser.


In 2008, then in full reorganization, Openwave sells the browser and messaging business unit to Purple Labs for $32M. It was not a glorious moment, after being the pioneer and leader of mobile internet, Openwave was separating from key assets to alleviate the financial pains it was experiencing. Along with these business units, a number of patents were transferred to Purple Labs. Purple Labs, now Myriad group has been contesting Openwave's right to use some of the technology derived from these patents and yesterday's announcement is now settling that matter. Openwave essentially buys back the patents for $12M.


Some of these patents are now the basis for the legal action filed today by Openwave against Apple and RIM.
"The complaint, filed at the International Trade Commission in Washington, DC, requests that the ITC bar the import of smartphones and tablet computers that infringe Openwave patents, including, but not limited to, Apple’s iPhone 3G, iPhone 3GS, iPhone 4, iPod Touch, iPad and iPad 2; and RIM’s Blackberry Curve 9330 and Blackberry PlayBook."

•  Openwave's 212 patent generally allows a user to use e-mail applications on a mobile device when the network is unavailable — such as when a user is on an airplane.
• Openwave's 409 patent generally allows the mobile device to operate seamlessly, and securely, with a server over a wireless network. 
• Openwave's 037 patent generally allows access to updated versions of applications on mobile devices. 
• Openwave's 447 patent generally allows consumers to experience an improved user experience in navigating through various pages of information without delay. 
• Openwave's 608 patent generally relates to cloud computing. For example, the 608 patent enables data to be accessed or shared by different devices such as mobile handsets or computers. 

These legal actions won't change Openwave's capacity to effectively market their technology, but their capacity to monetize their intellectual property, if successful, will impact positively their valuation in the mid term.