The Motley Fool

Is Wi-Lan Set for a Turn Around?

By:  Chris Lau

Wi-Lan (TSX:WIN) is in the business of monetizing patents.  Given they aren’t developing these patents and merely acquiring them with the hope of nabbing those who are infringing on them, some might argue that there business model isn’t overly wholesome.  However, at its best, this model can be a money maker.

In recent years however, the formula hasn’t been working all that well as evidenced by the chart below.

wilan stock chart


There are emerging signs however that indicate growth is set to return to this name.  Let’s find out what these signs are.

Significant Patent Portfolio Growth 

Wi-Lan’s portfolio of patents has expanded significantly in recent years, at the same time as its stock price has languished.  With more than 3,000 patents in its stable, the company has tremendous optionality as these patents are diversified across the wireless, digital TV and display markets.

wilan patents

Source: Wi-Lan

Shareholder Friendly

Wi-Lan has virtually no cap ex and is therefore a free cash flow machine.  In 2012, the company bought back almost $16 million of its own stock as well as sending $15 million out the door to fund a much improved dividend payout.  As this expanded portfolio of patents begins to bear fruit, it’s not unreasonable to believe that these shareholder friendly actions will gather steam.

Massive, Untapped Markets  

Research data from Dell-Oro, Stratey Analytics, and Wi-Lan suggests the licensing market in the wireless world will be worth more than $1 trillion. As Apple, HTC, and Samsung grow sales, they will be more inclined to reach licensing agreements with any patents owned by Wi-Lan.

In addition, patents related to digital TV and display could be worth $200 billion, an amount that investors tend not to give Wi-Lan much credit for.  The display market is currently lagging as flat panel demand is currently soft.  As innovation improves in display, demand could improve, which could leave suppliers to be inclined to reach an agreement with Wi-Lan for any display-related patents.

Bottom Line

Higher litigation expenses have dogged Wi-Lan but the company has had several recent successes.  Given the size of the company’s patent portfolio it’s not a stretch to believe these successes won’t continue.  And, at current levels, the stock is not reflecting very much in the way of future success.

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Fool contributor Chris Lau does not own shares in any of the companies mentioned.  The Motley Fool does not own shares in any of the companies mentioned.   

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