All right. All right. Welcome to the afternoon session here on day one of the RBC TIMT Conference. We're excited to have Liren Chen, CEO of InterDigital. Welcome. And then for those less familiar, could you just give us an overview of InterDigital? And then another question I always like asking people that joined their companies relatively recently is, what did you see in InterDigital that made you want to join?
Got you. Hey, first of all, Matt, thank you for having me here. InterDigital is a technology company. We were founded in 1972, and from day one, we were focused on wireless communication. We built the very first digital wireless system in the United States, but over the years, we converted our business model into an innovation-driven IP licensing business model. Okay, there are two major pieces of our business. One is we invest in fundamental research. We built one of the largest and probably one of the most valuable patent portfolios in the industry, but that's just part of half the story.
The other half of the story is we actually sent some of our best engineers to work with the rest of the industry and to essentially push, convincing, and frankly, collaborate with the rest of the industry to make our technology part of the standard, the industry standard that's open to everybody. And by doing so, we make sure there's a wide adoption of our technology in many different devices. That can be in cell phones, that can be in TVs, and that increasingly can be in the cloud space. And then afterwards, we license our IP that we have created in the innovation cycle to the device maker, to the service providers, to whoever else is using our technology by adopting the standard.
So if you look at our investor deck, there's a pretty good graph describing these two virtuous cycles of innovation IP and the standardization of technology and how we license technology to put them back into the innovation of research, development, and patent portfolio. So that's our business model. And regarding why I'm here, so I was originally from, I came from China, by the way. I came to U.S. grad school, and then I joined Qualcomm after I, fresh out of grad school in 1996. And I spent 25 years at Qualcomm, started with an engineering job, and then I moved into Corp. R&D. And Qualcomm actually sponsored my law school. And with law degrees and engineering background, I became an IP person. Then I was responsible for portfolio for mergers, acquisitions, frankly, some of the enforcement effort.
And over time, I frankly was more and more responsible on the licensing side, frankly dealing with similar customers as InterDigital. And then four years ago, I joined InterDigital as a CEO and President. I'll say for several reasons. One is the business model is quite similar with Qualcomm licensing business. And obviously, these are the publicly traded companies. So being the CEO, it's a really new challenge for me. But InterDigital has a very strong industry reputation for technology innovation, for advancing the cutting edge of technology similar to Qualcomm. And I frankly like the business model because I grew up around IP. I'm a true believer in IP in American innovation. And I also believe that with a lot of hard work effort, we can bring the company to the next level. And I think the journey continues.
I think if you look at the financial result, I think we have done a very good job at growing our business over the last four years.
Yeah. And in my introduction call with InterDigital, I was asking about what some of the common misconceptions or things investors didn't know. And they said that one thing was that investors didn't know the difference between standard essential patents and implementation patents. I've been working in equity research and tech for 12 years now, and I join the investors in not knowing the difference between those. So maybe just because it's such a key part of the story, can you just help explain it to us, the difference between standard essential patents and implementation patents, and then what your portfolio is currently made up of?
Absolutely, so first of all, I'm guilty of throwing acronyms in the industry, as many of you guys are, and so therefore, standard essential patent, if I peel off the patent side, first of all, you have to say, what is a standard? Why do we even need standard? Standard is everywhere, by the way. If I look around the room, that plug, that's a standard. The voltage is standard. The current is standard. That, frankly, the various different light sockets, those are standard, so why do people even need standard? The industry creates standard to primarily promote compatibility, so therefore, your iPhone would be able to talk to Android phone. They have to speak the same language, if you would, but standard is also created to promote economy of scale. By having a common standard, then you can make one iPhone, one SKU, you can sell it worldwide.
Otherwise, you would have to make it 100 different iPhones for different markets. Obviously, the economy scale breaks down, so standard exists in the industry for a long time. In our industry, the most important one is called 3GPP. It was initially created to create third-generation wireless technology, but over time, it's responsible for 4G, 5G. Now it's going to be 6G by another decade, so we have engineers working on, that's just one example. There's about 100 standard development organizations, which we are members of, which most of them we are leading. Participating and leading are two different things. We are the chair, the co-chair of those functions. We're organizing the process. We create technology. By the standard itself, it's very open. It's collaborative. Engineers are getting together, talking about the technical merit of the solution.
If our solution is truly better than others, then we have a better chance of getting to become part of the standard. Keeping in mind that when we create the technology, we file patents to protect them. That's really important. If our technology becomes part of the standard, then our patent that reads on the technology becomes quote-unquote SEP. They are standard essential patents. What that means is for anyone who is designing products implementing the standard, by definition, they are infringing our patent. All I need to prove is that my patent reads on the standard. And I need to prove that product is compliant with the standard. And by doing so, they are infringing my standard. So there's a lot of benefit for having standard essential patents. You can prove infringement more broadly. And frankly, there's not a whole lot of design around.
Because if sometime you say you are infringing my patent, the other side will say, "Okay, I'll take it out. I'll do something else." But in the standard essential world, you really couldn't do it. Because if you don't do what the standard says you should do, then by definition, your product is not compliant with the standard. That means your phone probably should not be allowed on the network. It's going to pose a security risk or it's non-standard behavior. It's going to harm other devices on the network. So that's a benefit. But as part of the standard process, we commit as a company to license our patent on fair, reasonable, and non-discriminatory terms as part of the standard process. So that's sort of how SEP works. On the implementation side, you can still have patents covering very important commercial things.
By the way, you can have a patent covering the design of the user interface. You can literally have a patent for the round edges versus circle edges, as some of you guys may know. Those are called design patents. There's different type of patents. Implementation patent can be also valuable, and we do have implementation patent in our portfolio, but implementation patents have to be proven on a case-by-case basis when you license them. That's different than SEPs, so regarding our portfolio, we have roughly 32,000 patents as of today, and every single day, we add five new patents to our portfolio, so think of something that's continuously growing, and in the ballpark number-wise, we have roughly two-thirds of our portfolio are related to various different standards. Cellular, Wi-Fi, and video codec are three of the most important things.
But we have the other one-third are either implementation patents, or they are so early that they have not yet to be determined to be future standard. That's important because we develop technologies five years to 10 years ahead of time. So we are ahead of the curve. It's possible we have patent in our hands that will be future SEPs, but we just don't know yet.
That's super helpful. Maybe thinking of five years ahead of time. So recently at your investor day, you laid out a plan of getting to $1 billion in recurring revenue by 2030. Could you just walk us through kind of the pieces of that plan? And then maybe what are kind of the key underlying assumptions to achieving it?
Yeah. There are three pillars of our licensing program. The first one, which is our bread and butter, is licensing to smartphone customers. Okay, we already have some of the largest customers under license. That's Apple, Samsung, Xiaomi, and Oppo. Those are number one, two, three, four largest smartphone vendors in the world. And we have a few others. So that's our largest program. And we have announced recently with our Oppo licensing just signed, we have roughly 70% of the market under license. That's one category. The second category is what we call consumer electronics and IoT, Internet of Things licensing. And there's multiple verticals underneath it. I'll give you a few examples. There's TVs, laptops, connected cars. There's wearable devices, a few others. It's somewhat more fragmented in the market. We have some of the biggest name license.
For example, we have Samsung TV under license, which is the number one TV market, TV vendor. We have Vizio under license. We have Sony under license but we need to sign up a few more, which I'll come back on the thing. Then we also have connected cars through our partnership with Avanci. So collectively, that's actually our faster growing market, our combined numbers. Then the third one, which is the largest greenfield opportunity for us, is actually in the cloud. We are licensing on the device side, but we are also pursuing opportunity in the cloud space. Cloud is more relevant for our video codec technology. I spent quite a bit of time talking about 3G, 4G but we are one of the largest developers of video codec.
That's the algorithm used to compress video signal into like 1,000 times to 1, and then be able to send it, and then on the other side, you decompress them, and this whole process, you have to do it without sacrificing quality. We are one of the largest developers for it, so let me give you numbers. For the smartphone licensing, we are targeting to grow it from our current roughly around 300-plus million to 500 million by 2027. We need to sign up less than a handful of customers, and we know who they are. We know how to get them down, so that, to me, we know exactly what's going to happen. On the second bucket, as I said earlier, it's a faster growing market for us. Four years ago, when I joined InterDigital, it's roughly $20-some million in recurring revenue.
We are currently sitting at about $90 million, so it's like 4x growth, but we are targeting to grow that to about $200 million by the end of the decade. The greenfield opportunity in the cloud, we are targeting $300 million plus for recurring revenue by the end of the decade, and let me sort of spend a bit more time on that because we currently do not have revenue in that space, and one of the most common questions I get from shareholders will be, "Why do you think you can have a market there? And why do you think it's that size?" So allow me to add a bit more to it. So why is I know with certainty that our technology is core to that function. We are one of the main developers in video codec.
Video codec is what allows you to compress a 4K video 1,000 times to 1 regarding the bandwidth consumption, and without this technology, it's unthinkable how you can offer a service with 1,000 times more bandwidth, 1,000 more times storage, 1,000 times more power consumption, so that's one thing. Second thing is really we have one of the largest patent portfolios in that industry. By the way, that's not what I said. That's rated by a third party. I'll come back to that point. The third one is we know what we're doing. We know how to license. It's a very large addressable market. The size of streaming licensing on the cloud is currently about $300 billion per year in revenue, and it's projected to grow to about $500 billion by 2027, and that's going to be the same size as smartphone overall revenue for the industry.
I also think the importance of codec to that industry. I'll say it's at least as much as 5G to the cellular industry, so that's sort of my value proposition. We have built a team. We are engaging that industry, and we feel by the end of the decade, we should be able to drive a significant amount of revenue to it, so that's sort of all the pieces, if you would. We are currently sitting more than $400 million plus of being grown there. Let me add one more piece. In our industry, when we sign up someone for the first time, very often, actually most of the time, we capture past sales. That means they have been infringing our patent for a long time. We do this catch-up revenue, and this catch-up revenue, by definition, is one-time only.
But it's on top of the $1 billion I'm referring to. And that can be substantial, by the way. We have demonstrated in the last few years, we get hundreds of million dollars of catch-up revenue from different customers in this period.
That's also super helpful. When we're thinking about kind of core drivers or philosophies of your business, it feels like a core value might be innovation from the way that you've been speaking. But where do you kind of see the most value creation? Or what steps are you taking internally to continue to build on your market position?
I couldn't say it any better. You said innovation is the core of our value creation, but by the way, innovation is obviously driven by people, so I put a lot of effort into recruiting, growing, and hopefully enabling the best talent in the industry, and by the way, we do have some of the best people from licensing to innovation R&D to patent portfolios, and to frankly, the overall enforcement, we have built a very strong reputation, and that's recognized by our standard engagement, by our partnership. We laid out a strategy, a very clear strategy, and we so far have been able to deliver very consistently at or above what we set out to do. If you look at our performance this year, we raised our financial target twice, including our last quarter.
And so every little thing we do, a lot of internal stuff we do, but externally, we obviously measure shareholder value also.
And then you mentioned in an earlier question the addition of Oppo as a new customer. Could you just talk about the opportunity, but then also the success you had in creating a deal in what's traditionally been seen in tech, at least, as a more challenging market in China?
Yeah, I mean, that's a great question. InterDigital is a major licensor in the industry. It's Qualcomm, by the way. I grew up at Qualcomm. If you look at the smartphone licensing, there's really two segments. It used to be more diverse, by the way. There used to be more than 100 smartphone makers in the world. Currently, it's really a concentrated market. There's Samsung and Apple, which are large number one, number two smartphone makers in the world. Then the rest from number three to number 10, they're all China-based. In our industry, most people, including InterDigital, target roughly half the revenue from Apple and Samsung, and the other half from the rest of the Chinese vendors. By the way, they're all tough. I would not say only licensing Chinese vendors are tough. I mean, Apple is the largest vendor in our industry.
They always drive a tough bargain. So is Samsung. But we are able to demonstrate over and over and over to them that they are benefiting a lot from the technology we create. I'll give you a few numbers. Samsung has been a customer since 1995. We keep on renewing them. Apple has been a customer since 2007. We keep on renewing them, including the latest deal we signed, which is a seven-year deal. They agreed to pay us close to $1 billion, which is 15% higher than the last deal on an annualized basis. So when we approach Chinese vendors, we take, frankly, a similar approach. We are patient. We demonstrate our value over and over to them. And then we are able to sign Xiaomi, which is the number one smartphone maker in China. We just signed Oppo, which is number two in China.
And then we still need to, and we, by the way, put Lenovo under arbitration process, which is, frankly, a step much closer to license. And we historically were able to sign Huawei and ZTE. Now it's still in different situations, as you already know. Then we are going to sign up Vivo and Honor and Transsion. That's pretty much it. So if you add them up here, we are currently at 70%. And after we sign up those customers, we'll be at probably 90 plus percent So the industry concentration in that dynamic works in our favor because there's, frankly, fewer vendors to choose. Once you sign them up, you capture a larger part of the market.
Maybe kind of naturally building on that. So now that you're at 70% market share, could you talk about the opportunity that's remaining in the remaining 30 relative to, like you mentioned, the 15% uplift from Apple's deal, the value that's still left within the 70 that you're already working with?
Yeah. I mean, if you look at the remaining 30, by the way, it's difficult to get to 100%. I used to target 80%. Now I'm actually raising the bar to about 90%. So there's really three or four vendors. There's Vivo, which for those of you who follow them, they are fairly major customers. They just don't come to the U.S. They are major sellers in China, India, and Europe. And then there's Honor, which is a spin-off out of Huawei. When Huawei was under sanctions, they spun out a fairly large part of their team, as well as their channels into the separate company called Honor. And there's still Huawei. Huawei is a much smaller company now regarding the smartphone side. And they are due to the chip and GMS access limitation.
Then there's an upcoming company called Transsion, which is based in Shenzhen, but selling devices used to be in Africa. But now they are trying to move up. They're trying to move up the value tier, which offers us the opportunity to license them. So if you add them up, they are roughly 25% of the rest of the 30%. And we are making progress with all of them. I think getting Xiaomi and Oppo down clearly set a very good benchmark on what the value is supposed to be and the momentum we have with those accounts.
So at the end of the day, kind of as we've talked about before, the people that are not paying you are infringing on patents.
That's right.
So for companies you haven't signed licenses yet, what are the strategies to conversion? And then I guess, how often do you need to take that legal step to enforce your patent protection?
Yeah. Look, I mean, first of all, I want to say the vast majority of our licenses get signed through buyback renegotiation. And this is not just me saying so, I can demonstrate these numbers. Since I joined InterDigital, we have signed more than 40 agreements for zero. And only three of them are without litigation. So that means 90 plus percent of them are getting done without litigation. And by the way, that includes Apple, which is the largest deal and arguably the strongest customer in our industry. So that's that. But it's also important to know that we are always ready to defend our portfolio, the value of our IP, for two reasons. One, it's not fair to us that we're putting all the money. By the way, through the history, I would say it's many billions of dollars we developed.
And we create one of the most valuable patents that people can just frankly steal from us. That's not cool, to be honest. But second thing, though, we also want to make sure it's fair to other paying customers because they are competing in the same space. If Apple and Samsung and frankly now Xiaomi and Oppo are paying us, and other customers who are selling competing products in this market space are not paying, then they get an unfair advantage against other well-behaved customers. So that's not fair. So we are very careful on that issue, but we are ready to enforce it if we have to. And I'm quite pleased to see through our history, through the InterDigital history, even before I joined the company, every time we end up enforcing our right, we always end up with a license agreement. We always end up with it.
That demonstrates the value of our innovation. That's frankly the quality of portfolio and our ability to enforce and our resource to do so. It's important. And by the way, those reputations carry us forward. And then if people realize this is a fight that they will frankly end up losing, that gives them better incentive to do a good faith negotiation with us.
Maybe moving off mobile for a second. So looking at the traction that you've had in consumer electronics, IoT, autos, how is the market similar and how is it different from the success you've had in mobile, and maybe kind of to your point about the density, how fragmented are these markets compared to mobile?
Yeah. I mean, so in terms of similarity-wise, our technology has been more important than ever because everything wanted to be connected to the network. And if they have a choice, they want to be connected wirelessly. It's just more convenient. It's ubiquitous, all these things here. In terms of difference, I mean, if I take a step back here, sometimes the technology we bring to the table is an enabler for that particular vertical, but may not be the main driver. I'll give you a couple of examples. I love to talk about cars, connected cars. But a car is currently being sold for, I don't know, $40,000. I cannot say a vast majority of the car's value is driven by cellular connectivity because it's simply not true. There's engines, there's transmissions, there's battery if it's an EV.
So the connectivity piece of a car is not the same proportion for the $40,000 car versus the proportion for a phone that may be sold for $1,000 or $400 if you look at the average cell phone. So we try to get a portion of it, but that's proportional to the value we drive. But on the other side, there's also a lot of IoT devices. There's connected doorbell. There's smart meters where the utility company reads your usage once per month. That's a different use case. They are not trying to drive the same per-unit valuation compared to a cell phone who will use it every day and you send a lot of data. It's a very personal experience. So we try to tailor our program proportional to the value they're benefiting from.
And we talked about this a little bit about the video compression. But when you think about streaming or gaming markets, how do they fit into your long-term growth plans? And I guess, what are the key catalysts you think you have to make penetration into these markets?
Yeah. I mean, look, the cloud side, it's clear the future of the value shifting is happening to the cloud increasingly, whether that's AI-driven or that's streaming-driven. Because what people wanted to do is there's a content-driven industry. There's a user-generated content exchange industry. By the way, it's not just one-directional. If you look at TikTok versus YouTube versus Netflix, there's a bidirectional video versus one-directional feedback. But it's very clear that users are craving for more rich user experience. It's not going to be decided by text message or email. It's going to be driven by high-resolution video. And currently, by the way, it's 2D video. Over time, people will be seeking for the immersive user experience, so it's 3D video among others. So that's very clear. That industry is large. It's already $300 billion per year. It's going to be $500 billion and growing fast.
And by the way, the value of video codec, I don't think anyone will dispute it. Then it's a matter of how do you convince the first person to take a license. I don't think there's any magic other than convincing a large smartphone licensing vendor to take a license. You have to be very patient, demonstrate value to them over and over and over again. And by the way, you need to be ready to defend the value of the patent portfolio if you have to. I think it's always sort of two things going in parallel.
Maybe I'll stop for a quick second. Are there any questions in the group?
Thank you so much. So on the video codec side, I just wanted to understand, are the vendors using your codec or compression that is under your patent and you have to convince them to pay? Or are they using something else right now, and you have to convince them to use your compression technique and then extract the license? And if they're not using anything, then how do you convince them? Is it just a matter of volume growing? Thanks.
It's important to know that we have fundamental innovation that enables every generation of codec, so it's the same thing as on the cellular side. We have patents on 2G, 3G, 4G, and 5G. We have patents on. There's a lot of acronyms. I apologize. There's AVC, there's HEVC, and VVC. They just mean multiple generation video codec. Every generation is more sophisticated, and that gives you better coding efficiency. That just means you can send the same thing with less traffic, so it's undisputed that all the vendors are sending compressed signal. Otherwise, they can't do it. It's just the economy will completely break, and we have proven they are using it, so on the device side, think about it. You are getting compressed signal and decompressed before you display it. In the cloud, they do the compression. That compression process is using our technology.
And that's just a simplified version. What's ended up happening in the cloud, there's a lot of things people call transcoding. They take one format of the content, they decompress it, they recompress it with another format for various different reasons. Because if you think about it, it's a very complex supply chain. Sometimes because it's user-generated content, I can shoot a video on my phone using any codec I wanted to. I send it to the cloud, and then it's getting recoded into something else, distributed to other people. So that process is actually a somewhat complex process. And it's undisputed, in my opinion, that our technology is involved in multiple steps in that process.
Hey, just a follow-up question on video codec again. I'm new to your story. Apologies if this is obvious, but.
No worries.
How many years have you been trying to get paid for your license on video codec? I know you talk about being patient and sometimes just take the time, get the first one, and then the ball drops. Can we speak to what has changed in the industry or maybe what you expect to change that could lead to kind of more confidence that you will get that first license or two? Or really, it just takes time. Just wait and see.
Yeah. Number one, we have a long history of developing codec. The InterDigital Codec asset, it's primarily coming from our Technicolor acquisition. Technicolor is a pioneer in this industry for a long time, by the way. If you go to Smithsonian Museum in Washington, D.C., under the Hall of American Innovation, you will find Technicolor tag says behind the magic of Technicolor, that camera is shot. The very first color movie in the USA is shot by Technicolor camera. So we have a long history. Technicolor literally enabled this industry throughout the whole history. We have one of the largest and most valuable patent portfolios rated by third party. That patent has been used in our smartphone licensing. It's being used in our video licensing for TVs. It's being used in our video licensing for laptops throughout the years.
We signed a new agreement literally in this quarter. Oppo asked for the codec. What is new, though, is we are trying to license on the cloud side. Cloud, honestly, it's not brand new to the consumer. It's still relatively new to our industry. It's not devices. People have been selling devices for, honestly, probably dozens, if not a longer period of time, and the cloud space is still cloud existed, but it's not the big size, so now it's growing faster. A lot of value being proposed. By the way, we're not the only company. There are several other companies who have critical assets in the space also trying to license in that space, so back to your question, why do I think we can do it? Because our technology is critical.
Our assets are highly valuable, and they are creating hundreds of billions of dollars of value based on the technology we created. And we have the right to protect them. And we are not getting paid yet. So it's a matter of negotiating and trying to get paid.
With that, I appreciate the audience participation, but we are out of time. Thank you guys so much for joining us.
Thank you.