Intergraph: Set to Milk Its Patents

Intergraph (INGR ), a provider of graphics software and services, has turned out to be a rewarding "patent play." The company holds valuable patents on microprocessors for high-end workstations. It is these patents that have attracted interest in the stock. Trading at 8 last October, shares hit 19 in mid-May, before easing to 15.90 on July 31. "Because of the patents, Intergraph is on the verge of collecting substantial royalty and licensing fees," says Jan Loeb of Jefferies, who rates the stock a buy, with a 12-month price target of 24. He doesn't own shares, and Jefferies hasn't done banking for Intergraph.

In April, Intel settled a patent-infringement suit that Intergraph filed in 1997: It agreed to pay Intergraph $300 million. "The settlement opens the door for Intergraph to claim license fees, which could total hundreds of millions, from companies using Intel's Pentium processor in their systems," says Loeb. And Intel faces another Intergraph suit in Texas. Loeb figures a win in this second case could produce a further $250 million. Loeb sees Intergraph earning 40 cents a share in 2003--not including new licensing fees arising from the settlement--up from an estimated 14 cents in 2002. As part of the deal, Intel has agreed to pay Intergraph $150 million if Intergraph prevails, and a further $100 million if Intel loses on appeal.

By Gene G. Marcial

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