Apple's patent lawsuit win over Samsung drew a mixed reaction ranging from "an important symbolic victory" to "far reaching implications" to "unlikely to meaningfully change the smartphone landscape."
A jury on Friday handed Apple $1.05 billion in damages and found that Samsung willfully infringed on its rivals patents. Apple will now seek injunctions on Samsung products. Samsung will appeal.
Although the Apple lawsuit focused on Samsung it was really about Android. It's unclear why Apple hasn't sued Google directly, but to truly revolve the patent issues with iOS and Android the two parties should lock and load their lawsuits.
Here's a look at what analysts are saying about the lawsuit and my take.
Piper Jaffray analyst Gene Munster, the most bullish analyst on Apple, didn't go put much weight on the patent victory. He said:
We believe that Samsung is likely to make software modifications to devices to work around the patented software features in question. For devices that infringe on design patents, we believe those devices may no longer be sold in the US; however, it does not appear that newer devices, including the Galaxy SIII are impacted. Net-net, we do not believe Samsung will see any meaningful interruption, likely only minor interruption, in device sales in the US... We believe that it is likely that other lawsuits between Apple and other handset makers move toward a settlement, given the precedent of the Samsung case. In these cases, we note that software changes are the most likely competitive outcome (aside from monetary exchanges). We do not believe further settlements are likely to hamstring Android in any serious way.
My take: Munster is dead-on. Unless the Galaxy S3 is hit, the patent loss to Samsung is manageable. Android will continue its March unless Apple finds a way to stop it in emerging markets like China.
Morgan Stanley analyst Katy Huberty was convinced the patent lawsuit would boost Apple iPhone market share. She said:
The $1.05 billion in damages the jury awarded Apple is relatively insignificant compared to Apple's nearly $120 billion of cash and investments. In our view, the bigger win for Apple is the competitive ramifications if other smartphone vendors experience lengthened product cycles and are forced to alter their software and hardware to ensure unique designs relative to Apple products.
My take: Huberty is stretching. Apple's product cadence for the iPhone is simple: Once a year. It's highly unlikely that Android device makers---even if they need software tweaks---are going to release devices at a clip slower than Apple.
Barclays analyst Ben Reitzes said that the value of the verdict isn't really quantifiable Apple doesn't need to put Samsung and the Android army out of business. Reitzes said:
While we realize the verdict will be appealed, we believe the ruling marks an important victory for Apple against Android. Competitors may now think twice about how they compete in smart mobility devices with the industry’s clear innovator. If Apple forces competitors to innovate more, it could take longer for competitive products to come to market, and make it more expensive to develop them. As a result, Apple’s pricing umbrella could be sustained longer while it should also sell more units over time.
The outcome of these lawsuits impacts the 659 million unit smartphone market. As for the tablet market, the total market opportunity is 112 million units in 2012E. For example, if Apple can sell an incremental 10 million more iPads and 20 million more iPhones at current prices – helped by its ability to slow down competition, it would add $17-18 billion in revenue or $5-$6 in EPS creating $65-$80 of shareholder value per share (applying just a market multiple).
My take: Reitzes' best move was putting some dollar figures to his take. Apple's victory isn't zero sum and doesn't have to be for the company to rake in lots of dough.
William Blair analyst Anil Doradla took a nuanced view about Android and developers. He noted that Samsung's size couldn't be ignored by Apple and added:
While Samsung’s case is not related to Android or Google, it nevertheless will be viewed incrementally negative for them. As HTC’s recent litigation has proved, Google cannot guarantee protection to its Android ecosystem against Apple. Bottom line, we believe handset vendors are thinking twice about embracing the Android ecosystem.
My take: Litigation is nice, but developers---not lawyers---will ultimately decide whether Android stumbles or keeps moving forward.
Stifel Nicolaus analyst Aaron Rakers said that Samsung is likely to settle Apple patent claims going forward.
Since Samsung was found to be willfully infringing Apple's patents, we believe Samsung is more likely to begin constructive patent licensing negotiations with Apple. Assuming that Apple can more confidently demand the $30 per smartphone and $40 per tablet they initially outlined, this could add around $8bn and $7-$8 to Apple's revenue and EPS in FY13, respectively. Although Samsung has responded by suggesting that a win for Apple would result in fewer options and higher prices for consumers, we think Apple has worked diligently to make its smartphones and tablets more affordable by offering previous generation devices at reduced prices
My take: A global patent settlement with Apple seems increasingly likely now.
KDB Daewoo Securities analyst James Song said that Samsung can take the hit. He said:
We believe that Samsung's second half smartphone lineup is superior to Apple's. While Samsung's lineup (e.g., the Galaxy S III (4.8‰ screen), Galaxy Note II (5.5‰)) will be diverse, Apple is likely to depend only on the iPhone 5. Furthermore, along with Samsung's hardware improvements (e.g., adoption of plastic substrate-based display), major upgrades in Android 4.1 (e.g., smoother user interface, voice recognition) should be noteworthy.
My take: Time will tell. It's worth noting that the reaction from Asia's analysts are materially different than those industry watchers in the U.S.
Daiwa Capital Markets analyst Jae Lee said that Samsung's product cadence means an injunction has a limited impact.
Given the relatively short life cycle of Samsung’s smartphones, we think any injunction would have a limited impact. Although the US accounts for 15-20% of Samsung's smartphone sales, Samsung’s flagship models in the US are currently the Galaxy S III and Galaxy Note, which look different to their predecessors and incorporate different technologies that do not infringe on some of Apple’s patents.
My take: There's something to Lee's argument. Can the Galaxy S4 be all that far behind?
