Broadcom - IP Valuation

Contents

Overview of valuation

IP valuation is a complex procedure taking into account economic, technology-related as well as juridical factors. The heterogeneity of the factors concerned and the specific purposes addressed in every valuation do not allow adopting one generally-accepted standardized IP valuation model, but there are a variety of different models and tools comprising different approaches. The main approaches are:


Why Income method ?

We have used the Discounted Cash Flow (income based method) due to following reasons:


Objective


Methodology

The generic methodology for IP revenue estimation is given below



Analysis for 10/801,472 application number

The application number 10/801,472 comes under the category of Dual mode cellular/Wi-Fi. The analysis for this application number is illustrated below.

Dual mode mobile market

In order to assess the dual mode mobile market, the following steps were performed

For this calculation, we have assumed


The growth of dual mode mobile handset units and the market share of leading Wi-Fi handset vendors is shown below:



Year Total mobile units (billion) Total Wi-Fi units (million) Dual mode mobile units (million)
2007 1.15 35.65 25.31
2008 1.19 97.58 69.28
2009 1.15 132.25 93.90
2010 1.20 192.00 136.32
2011 1.25 266.25 189.04
2012 1.78 459.73 326.40
2013 2.06 555.93 400.27
2014 2.37 663.00 483.99
2015 2.71 786.24 581.82
2016 3.09 927.23 695.42
2017 3.49 1082.69 822.85
2018 3.95 1262.91 972.44
2019 4.42 1458.66 1137.75
2020 4.95 1658.45 1310.18
2021 5.50 1868.35 1485.34
2022 6.04 2085.41 1668.33
2023 6.59 2306.04 1844.84
2024 7.12 2490.53 1992.42


Source: Gartner, Techcrunchies, Abiresearch

Importance of dual mode mobile phones

Source: Wi-Fi Planet, VOIP Monitor

Importance of IP to the product market

Application Number - 10/801,472 (US20050008002)

Focus of the patent

Multi-mode communication device and method of its operation

Device specification

Method of communication


Valuation for 10/801,472 application number

Steps of valuation


The working sheet


Cost of processor per unit ($) 0.025
No. of dual mode mobile units 136,320,000
Expected revenue ($) 3,408,000
Average royalty rate 7%
Expected revenue from royalty ($) 238,560
Discount rate 10%
Time frame (2010-2024) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14
Cost incurred
Licensing and administrative cost ($) 288,000
Cost of obtaining US patent ($) 12,565
Cost of obtaining foreign patent ($) 120,000
Net cost ($) 420,565
Growth rate 39% 73% 23% 21% 20% 20% 18% 18% 17% 15% 13% 12% 11% 8%
Revenue stream ($) 331,598 573,665 705,608 853,786 1,024,543 1,229,452 1,450,753 1,711,889 2,002,910 2,303,346 2,602,781 2,915,115 3,235,778 3,494,640
Annual maintenance cost ($) 0 49 174 736 493 702 994 2564 1588 1829 2236 4830 3198 3646
Cash flow ($) -420,565 331,598 573,617 705,435 853,050 1,024,050 1,228,750 1,449,759 1,709,324 2,001,322 2,301,517 2,600,545 2,910,284 3,232,579 3,490,994
Discount factor 1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633
Present value of cash flow ($) -420,565 301,453 474,063 530,003 582,644 635,855 693,597 743,956 797,412 848,756 887,334 911,475 927,306 936,363 919,288
Net present value of cash flow ($) 9,768,942



Click here to view the excel sheet


Assumptions

Following assumptions were made for the IP valuation

Source: Royaltysource, Oceantomo, Bloomberg, Business of patents, European Patent Office, Netcom, Texas Instruments