Apple Inc. (AAPL) was yet again on the favorable side in its fight against Samsung as the U.S. District Court of Northern California sided with the iPhone maker and granted a ban on Samsung’s’ Galaxy Nexus smartphone in the country, reported Bloomberg. The court decided to ban Samsung’s smartphone owing to infringement of four patents that are held by Apple. Earlier, the same court had imposed a ban on Samsung’s Galaxy 10.1 tablets in a design-related patent case.
Among the four patents that Apple alleged Samsung to have infringed upon, is the voice activated navigational system, Siri, used in the iPhone 4S. In its ruling against Samsung, Judge Lucy Koh noted that Apple would “suffer irreparable harm” without the ban. However, this ban would be effective as soon as Apple would post a $96 million bond in damages, which is to be paid to Samsung if Apple loses the case when it goes on trial in 2014.
The Galaxy Nexus range of smartphones is a collaborated effort of Samsung and Google Inc. (GOOG) and is powered by the latest Android operating system of “Ice Cream Sandwich”, which debuted in U.S. in December last year. Getting banned in the U.S. would have serious implications on the company’s sales figures in the near term.
Over the last couple of years, Apple has been highly vocal about saving its intellectual property from misuse and violations. The company has been aggressive in filing lawsuits against other handset makers such as Samsung and HTC in order to protect its patents. Apple has accused these manufacturers of blatantly copying its iPhone and iPad designs.
Apple is protective about its iPhone designs because of the fact that iPhones have been a major constituent of Apple’s top line. iPhone unit sales were 35.06 million during the last concluded quarter, representing a year-over-year growth of 88.0%. Revenues from iPhone handset sales, accessory sales and carrier payments skyrocketed 85.0% year over year to $22.69 billion in the last concluded quarter.
However, Samsung with a 29.1% market share in the smartphone market has outperformed 24.2% market share of Apple in first quarter 2012 estimates, according to IDC. The more astonishing part was that Samsung’s year-over-year growth in units shipment was a whooping 267% compared to Apple’s 88.7% over the same period of time. Therefore, the fact that Samsung’s Android-powered smartphones are finding larger popularity globally is a major headache for Apple.
Thus, the current ban on Samsung is a positive for Apple as the unavailability of Nexus smartphones gives Apple a chance to increase its market share. Moreover, we believe this ban may compel Samsung to go for an out-of-court settlement providing significant bargaining power to Apple in case of a cross-licensing settlement. We believe that Apple remains the biggest growth story based on its product pipeline, popular apps, iCloud, iPhone 4S, the new iPad, Apple TV, and a loyal customer base. With solid balance sheet and robust revenues, we expect Apple to outperform its peers in the long run.
We maintain our Outperform recommendation over the long term (6-12 months). Currently, Apple has a Zacks #3 Rank, which implies a ‘Hold’ rating in the near term.
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