Friday, November 4, 2011

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 (herehere 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.

(In thousands, except per share data)
Three Months Ended
September 30,June 30,September 30,
 2011  2011  2010 
Maintenance and support10,67110,67713,993
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 development9,3489,83611,430
Sales and marketing8,73711,50910,821
General and administrative7,7867,1676,612
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.

No comments: