AAPL V Samsung: Street Cheers iPhone Boost; GOOG, MSFT, NOK, RIMM ... - Barron's (blog)

By Tiernan Ray

The Street this morning is responding to the ruling by a San Jose, California jury late Friday that Samsung Electronics infringed on three patents held by Apple with Samsung’s smartphones and tablet computers, and that Samsung must pay Apple at least $1 billion in damages, with the prospect of additional penalties and an injunction against the sale of some Samsung devices.

Samsung plans to appeal the verdict, it has said. Apple has to file its list of infringing devices by Today, with two weeks for Samsung to file a response. An injunction hearing is supposed to happen by September 20th.

On the same day, a panel of judges in Seoul, South Korea, ruled that Apple infringed two Samsung patents and Samsung infringed one Apple patent, and awarded small damages to each company and ordered bans on sales of affected products, as recounted by The Wall Street Journal’s Evan Ramstad and Min Sun Lee.

Apple shares closed up a fraction of a percent on Friday, and rose by $11.73, or almost 2%, in late trading, to $674.95.

Samsung shares fell by 7.7% to ₩1,177,000 in Monday’s trading in Seoul, which Bloomberg’s Saeromi Shin and Jun Yang note is the worst drop in the stock since October 28th, 2008.

Analysts have not only tried this morning to handicap the consequences for Apple but have also reflected on the possible implications for Google, which provides the Android software Samsung uses, and which is this implicated in the case. And there was some consideration given to Microsoft (MSFT) and its hardware partner, Nokia (NOK), and to Blackberry maker Research in Motion (RIMM).

Gene Munster, Piper Jaffray: Reiterates an Overweight rating on shares of Apple and a $910 price target. “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. We continue to be confident in our 4 year outlook on mobile device share, which assumes that iOS and Android further dominate the smartphone market with likely close to 85% share combined by 2015. Overall we believe iPhone global smartphone share will increase from 20% in CY12 to 32% in CY15.”

Amit Daryanani, RBC Capital: Reiterates an Outperform rating and a $700 price target. “We believe the recent jury verdict in favor of AAPL (vs. Samsung) is a significant positive for AAPL as it establishes that Samsung had infringed on multiple AAPL patents. The jury found that Samsung had infringed upon 6 of AAPL’s patents and awarded $1.05B to AAPL (less that 1% of AAPL’s cash position). We believe the fact that the Jury upheld AAPL’s claims is important in sustaining AAPL’s dominance over handset vendors (specially Android based). Furthermore, we suspect this may provide an offset with regard to carriers who have been attempting to lower AAPL centric subsides.” The ruling provides a “moral victory” ahead of the next iPhone’s introduction, he writes.

William Power, RW Baird: Reiterates an Outperform rating and a $740 price target. “The most immediate impact could be potential injunctions of current products, though Android OEMs could be forced to consider changes to software and product design longer-term. We would expect Google and its hardware partners to develop work-arounds over time. Positive for Windows, BlackBerry? A slowdown in Android activity due to patent uncertainty and possible injunctions could open a window of opportunity for the coming Windows 8 and BlackBerry 10 platforms. Any negative repercussions for Android could be construed as directionally positive for NOK and RIM, though both still face an uphill battle in our judgment.”

Colin Sebastian, RW Baird: Reiterates an Outperform rating on Google shares and a $750 price target. “While the verdict in the Apple patent trial presents some risks to the Android market, we believe the headlines may be somewhat more dramatic than real outcome. For example, despite potentially higher costs for Android device OEMs, we believe the smartphone market is important enough for them to adapt to patent rulings. In addition, key consumer features and functionality of smart devices extend well beyond the patents in question.”

Doug Anmuth, JP Morgan: Reiterates an Overweight rating on Google shares and a a $670 price target. “We believe the Apple-Samsung patent verdict out Friday night after the close is a negative for the Android ecosystem as it likely puts more pressure on Android OEMs to clearly differentiate devices and it suggests the courts may be willing to tightly enforce software and design patents in the future. For Google and Motorola in particular, the ruling may help shape the development of future devices and also put more pressure on Google to increase Motorola’s market share in smartphones. We believe Google shares could see some near-term weakness on the ruling.”

Mark Newman, Bernstein Research: Reiterates an Outperform rating on Samsung shares and a ₩1,950,000 price target. There are four possible scenarios, with the worst hurting Samsung profit by 6%, but he thinks the company will avoid the worst: “Scenario 1: Samsung gets a slap on the wrist and a fine, but no further impact as product bans get granted a stay as the appeals process goes on. In the appeals court, Samsung manages to overturn the verdict; Scenario 2: Injunctions are granted on all infringing devices [...] on September 21st. Samsung is unable to sell these devices for the foreseeable future. We estimate this will have a 1.4% impact on Samsung’s 2013 EPS [...] Scenario 3: Apple successfully argues that newer devices should also receive a product ban and Samsung is unsuccessful in getting a stay on these bans. We believe this is possible but unlikely to cover all Samsung’s devices [...] If we assume 80% of all Samsung smartphones cannot be sold in the US, this would be a 6.3% impact on Samsung’s 2013 EPS. Scenario 4: Samsung negotiates and agrees to pay Apple a license fee on all Android smartphones. If we assume $5 royalty for each smartphone and tablet sold worldwide (similar to what we believe Samsung pays to Microsoft), this would have a 3.8% impact on Samsung’s 2013 EPS.

Aside from the analayst views, there has also been discussion of the repercussions in the morning papers.

The Wall Street Journal’s Jessica Vascellaro and Don Clark write that the jurors last week “sent a signal” and that the verdict “cements its [Apple's] dominance of the wireless industry and could force carriers, and even Google to re-evaluate their product plans and strategies.”

The New York Times’s Nick Wingfield wonders whether the verdict might lead to greater innovation by competitors, and, if so, whether those innovators will actually be able to sell such innovations. He points to the example of slow sales of Nokia’s “Lumia” phones, which have been praised by originality, he writes, but, “have not sold well.” The article also contemplates whether greater differentiation in non-Apple devices will create headaches for developers who write software for such devices.

And the Times’s Steve Lohr writes in a separate piece that “The case underscores how dysfunctional the patent system has become,” and that, “In the end, consumers may be the losers,” even though he suggests device makers will eventually arrive at a truce.

The Wall Street Journal’s Rich Karlgaard, having just bought a Samsung “Galaxy Note” phone, writes that the device is better hardware than the iPhone, and questions why Apple didn’t “sue Google directly, instead of suing a Google hardware partner like Samsung?”

His answer: “Politics and public relations, mainly. Apple knows that suing a foreign giant will go down a lot better than suing a Silicon Valley neighbor.”

Bloomberg’s Adam Ewing, Adam Satariano and Hugo Miller write this morning about how Microsoft and Nokia might benefit from the ruling. Gartner researcher Carolina Milanesi tells the authors, ““I am sure that vendors in the Android ecosystem are wondering how long it will be before they become Apple’s target,” Milanesi said in an interview. “This might sway some vendors to look at Windows Phone 8 as an alternative, and for the ones like HTC (2498TW) and even Samsung, who have already announced plans to bring to market a WP8 device, how much stronger their investment should be.”

Bloomberg’s Tom Giles notes that Google has said that most of the patents covered in Friday’s U.S. ruling “don’t relate to the core Android” software.

And lastly, Bloomberg’s Ian King on Friday had a nice round-up of views by various tech and legal experts weighing in on the matter.