Court Ruling in Apple’s Favour Wipes Billions off Samsung’s Value

on Aug 28, 2012

Last Friday a US court ordered Samsung (LON:BC94) to pay $1.05bn (£665m) in damages to Apple (NASDAQ:AAPL) judging that it had infringed a number of its patents. As a result, more than $12bn (£7.6bn) was wiped off the market capitalization of the South Korean company as investors reacted to the disappointing result of the ongoing legal battle. Stock prices fell by 8 per cent, marking the largest drop in four years.

The fine amounts to only 8 per cent of Samsung’s net profit from last year and is something the electronics giant can relatively easily take in its stride. The Galaxy phone series has been enormously successful and secured the South Korean company’s position as the number one competitor of Apple. Lee Jae-Hyuk, analyst at Daiwa Securities in Seoul, believes investors were so disappointed because of the crushing victory of Apple – the court jury did not endorse any of Samsung’s claims, including a patent breach of Samsung’s wireless connectivity technology. What is of far more concern to investors than the fine itself is the fear that the ruling will mean Samsung will have to make significant changes to its android operating system and the effects of this on the popularity of subsequent models are now an unknown quantity. There is also the potential that existing Samsung smart phone models could be banned from sale in the US through further litigation which would naturally impact the company’s worldwide sales significantly

Samsung could not hold its frustration back and released a handful of colourful remarks regarding the case. The day after the ruling, the company seemed to be mocking the court, questioning the decision to give “one company a monopoly over rectangles with rounded corners”. This week, an even more direct attack on Apple and its actions has been sent out via an internal memorandum to all of Samsung’s staff:

!m[](/uploads/story/315/thumbs/pic1_inline.png)“History has shown there has yet to be a company that has won the hearts and minds of consumers and achieved continuous growth, when its primary means to competition has been the outright abuse of patent law, not the pursuit of innovation. We trust that the consumers and the market will side with those who prioritize innovation over litigation, and we will prove this beyond doubt.”

Samsung has promised to appeal the verdict as, according to the company, it went against rulings of other courts all around the world.
Apple, however, has no intention of decelerating its litigation assault after winning such a prolonged legal battle. The iPhone maker will now attempt to halt the release of Galaxy S3 – expected to be the biggest competitor of the much-anticipated iPhone 5. The company will try to ban the sale of eight Samsung smartphones in the US – the Galaxy S 4G, Droid Charge, Galaxy Prevail, and five versions of the Galaxy S2. Legal experts believe that if Apple manages to obtain a ban on those eight phones, it could add the Galaxy S3 to the list through a rapid “contempt proceeding” before the judge.

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“While a ban would likely increase Apple’s leading smartphone share in the US market, we believe this verdict could lead to Samsung also delaying near-term product launches as it attempts to design around Apple’s patents,” Canaccord Genuity analysts said in a note.
Ironically, Apple’s historic foe, Microsoft (NASDAQ:MSFT), may stand to benefit from Friday’s ruling. The software giant has developed an operating system, which bears no resemblance to Apple’s iOS. Microsoft, working with the Finnish company Nokia (NYSE:NOK), has developed the Lumia operating system in an attempt to end the Android-Apple duopoly engulfing the market. Nokia’s shares surged by around 10 per cent to €2.746 (£2.172) with investors clearly of the belief that Samsung’s loss could have positive impact on the Finnish company’s phone sales. The firm is also expected to unveil new phone models next week, which will run on Windows 8. It will be a huge opportunity for Nokia to finally become a major player in the smartphones market.
“We think that the real winner here will be Microsoft and the Windows Phone ecosystem,” said Nomura analysts Manabu Akizuki and CW Chung. “As Android and Apple tear each other apart, Microsoft has been waiting in the wings and is in a very good position to move in and entice users to switch from Android to Microsoft, as we have already seen that user loyalty is low.”
Even after share prices of Samsung tumbled, they are still 63 per cent higher than their level a year ago. The Korean company has managed to achieve a 75 per cent annual increase in mobile device sales to $18bn (£11.4bn) in Q2 of this year. Samsung Electronics is also somewhat ironically one of the largest suppliers to Apple, providing about a quarter of the parts in every iPhone, in terms of value. Analysts believe the recent lawsuits will not ruin the two companies’ enormously valuable supplier relationship.

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