InterDigital acquires second tranche of Technicolor’s R&D assets

Unfulfilled by its meal of Technicolor’s patents licensing business, US mobile technology specialist InterDigital has come back for seconds, wolfing down the troubled French vendor’s Research & Innovation (R&I) division for an undisclosed sum. Could rivals rue the day they allowed InterDigital to inherit the guts of a company which, despite its ongoing dismantling, owns some dynamic technologies and has a world-renowned research unit?

Already known as a vociferous patents force in video and wireless, InterDigital will make additional inroads into the fierce video codec and smart home spaces with its latest purchase, as well as into emerging segments such as AR, VR, machine learning, imaging sciences and wider IoT use cases. HEVC and ATSC 3.0 in particular are two fields of expertise for the Technicolor R&I team, and certainly there will be ongoing developments with emerging codecs via the numerous academic and research partnerships the world over.

The two companies have also agreed to terminate their jointly funded R&D collaboration, which was struck following InterDigital’s purchase of its first set of Technicolor assets in July last year, and as such Technicolor has reduced its rights to a revenue-sharing agreement concerning the licensing business. InterDigital will therefore be $5m a year better off thanks to the elimination of an annual research payment to the French firm. However, some small print notes that InterDigital will deliver R&D services to Technicolor.

The deal leaves Technicolor a shell of its former self but echoes our advice last year – that the company should get out of hardware hard and fast, along with other struggling business units, to concentrate instead on being a pure visual effects (VFX) business. VFX has been one of few silver linings from the vendor’s recent financials, although Android TV is another promising growth area.

Patent royalties already accounted for InterDigital’s largest revenue stream even prior to the deal to buy Technicolor’s patents licensing business for $150m upfront (valuing it at $475m at the time), which really puts into perspective the significance of the deal. Now with the clout of an esteemed R&I team – some 200 researchers and engineers strong – and a reduced share of patent royalties heading Technicolor’s way, we hope to see some genuine innovation coming out of InterDigital in the coming years.

Under the Technicolor R&I umbrella there are four specific labs. Firstly, the Home Experience lab, centering around connected devices for video, among other experiences. The company says it is currently focusing on cultivating data from network evolution, future edge network, immersive devices and data analytics.

Second is the Imaging Science Lab, a hub for developing tools to analyze, process, represent and render content – for enhanced imaging quality and more realistic character movement. Core video coding, content processing, compression ecosystems, and color science are among the core focus areas here.

On the slightly more miscellaneous side is the Immersive Lab, housing mixed reality, real-time VFX and light field technology experiments, through the development of computer graphics, computer vision and video processing.

And finally, the AI Lab, where Technicolor says deep learning is being harnessed to build novel services and cognitive apps on resource-constrained devices such as OTT boxes. One ongoing project is looking at transparently monitoring user interactions with OTT services to analyze interests and to enhance and personalize the user experience.

It’s likely InterDigital will be making a few changes, slimming down its new R&I business to align better with its own roadmap and of course to reduce spend. If we had to guess, VR projects will probably be the first to go. That said, InterDigital has shown particular interest in this field, last year publishing a white paper which proposed a radical new way of encoding and supplying 360-degree video to devices. This involves ways of breaking up 3D video into concentric layers or spheres, where all the objects are the same distance from the viewer and treating each layer in the same way regarding motion parallax and occluded content.

Another interesting element is that InterDigital is in the process of being sued by Huawei for alleged violations of license patents relating to 3G, 4G and 5G technologies, so perhaps bulking up its video business could be considered insurance in the event of a hefty defeat to Huawei and therefore a substantial knockback in 5G.

A couple of caveats worth noting include a modest increase in operating expenses for InterDigital, after taking into account R&D tax credits from the French government.

InterDigital also notes that it expects fourth quarter 2018 operating expenses to be at the top end of the range, including approximately $9m related to one-time charges, including $4m of non-cash charges related to the acquisition of Technicolor’s licensing business.