A patent cross-licensing agreement signed by Taiwanese electronic paper display supplier E Ink Holdings Inc (元太科技) and Japan’s Sharp Corp is more a firewall against a patent war than a potential source of patent fee revenue, a Taipei-based analyst said.
“E Ink has not estimated patent fee revenue. We believe the intention of the contract is to prevent potential lawsuits over patent infringement,” Eric Kao, an analyst at KGI Securities (凱基證券) in Taipei, wrote in a recent note to clients.
“We don’t think the agreement will contribute meaningfully to E Ink’s earnings,” he said. “We hold our view that the company’s earnings in the second half will see limited growth, and that shares will continue to tread water.”
KGI maintained a stock rating of “neutral” for E Ink and a target price of NT$30. Shares of E Ink closed down 0.35 percent at NT$28.85 on Friday.
E Ink announced on Thursday that the company and its South Korean unit, Hydis Technologies Co, each signed 10-year patent authorization agreements with Japanese panel maker Sharp. E Ink and Sharp will have right to manufacture patented TFT-LCD and peripheral LCD technology products of the counter party within agreed terms and will be required to pay fees for the use of authorized patents.
In 2006, Sharp signed similar agreements with Taiwan’s AU Optronics Corp (AUO, 友達光電) and Chimei Innolux Corp (奇美電子) to prevent litigation over patent infringements, but the agreements never generated high revenues for the panel makers, Kao said.
E Ink also signed a patent deal with South Korean flat panel maker LG Display Co in 2009 and received a one-off patent fee of NT$300 million (US$10 million) before the agreement expired, he added.
One variable that could change the equation, Kao said, is Hydis’ fringe field switching (FFS) panel technology, which is an improved version of the wide-viewing angle in-plane switching technology developed by Sharp.
However, Kao said that because Apple Suppliers, such as Samsung Electronics Co, Toshiba Mobile Display Co, Sharp and AUO have not signed patent authorization agreements with Hydis, the technology has not become a requirement for Apple Inc’s iPhone and iPad.
“This suggests FFS is not an exclusive wide-viewing angle panel technology. Thus, Hydis won’t likely be entitled to high patent fees,” Kao said.
Jerry Su (蘇厚合), a research analyst at Credit Suisse, said the E Ink/Hydis announcement on patent cross-licensing with Sharp surprised the market because speculation had been focused on AUO licensing FFS technology from E Ink to supply the panel in Apple’s next-generation iPad mini.
“We estimate E Ink will book NT$461 million in FFS royalties income from Sharp’s shipments of Apple’s latest iPad [which incorporates FFS technology],” Su said in a separate note.
He expected E Ink’s projected rebound in the second half would remain intact despite delays in the introduction of new e-paper display products and said the company’s recovery will now be further supported by royalties from Sharp.