Throwing Samsung Under The Bus

Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Google (NASDAQ: GOOG) didn’t get a market cap of $220.73 billion and become the world’s largest search engine by being stupid.

News stories that Google stands to lose substantial revenue over the Samsung (OTC: SSNLF) verdict have overlooked the fact that Android was never designed to be a money maker. Since its release in 2008, Android has only generated $550 million for Google.  Android was created with a different purpose in mind: to throw a monkey wrench into Apple’s (NASDAQ: AAPL) conquest of the smart device universe.

Android was designed to get under Apple’s skin.  Google essentially took iPhone’s functionality, repackage it as Android, then gave away Apple’s tweaked coding as Android Freeware. And by making it an open-source platform, anyone could access Apple’s technology free of charge.  Samsung’s loss puts Google at risk of losing a product infringement battle since Android’s OS can be traced back to Apple.  Steve Jobs knew this and expressed his belief succinctly:  "I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong. I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this."

Unfortunately for Samsung, the court found that their designs infringed on Apple’s patents, which should come as no big surprise.  For years Samsung and Google helped themselves to Apple’s technology as a means to short-cut R&D and get their products on the market faster.  The two companies collaborated to create Android’s Ice Cream OS, and it’s no accident that two of the best smartphones, Google’s Galaxy Nexus and Samsung’s Galaxy S III, are pure Android.

What would it mean to Google if they lost Apple’s patent infringement battle?  Probably not a whole lot since Google sits on $41.72 billion in operating cash.  Google could pay any potential fine or, if they really wanted to tweak off Apple, appeal the verdict and countersue.  At worse, Google could reengineer Android OS enough to avoid new patent infringement claims and market the new OS as an upgraded Android.

The big losers in this battle, sadly, are the Android original equipment manufacturers, or OEMs.  The Galaxy Tab 10.1 is already banned in the U.S. and Apple gave the court a list of eight more Samsung-made devices it would like to see banned.  When the verdict was announced on Friday, August 24th, Samsung’s stock price nose-dived from a high of $448.55 to $416.75 the following Monday.   The stock has recovered some of the loss and now trades around $432.00, but investors should be prepared for another steep stock price drop should the court grant any of Apple’s injunction requests.

For smaller Android OEM firms like Taiwan’s HTC or Japan’s Sony, or especially for Korea’s LG Electronics, a firm that only manufactures Android devices, a court injunction could be devastating.  These companies don’t have Samsung’s financial prowess to absorb increased hardware redesign and production costs and could find themselves fighting to stay alive.  Investors could have a field day deciding which company to short first.

With the jury’s validation of Apple’s patent infringement claims, the curtain is falling on Google’s current Android OS design.  Google engineers will rework the product enough to avoid further legal issues and do their best to remain an ongoing major pain in Apple’s side.  Android OEMs will survive by revamping Android hardware, joining forces with Microsoft, or go out of business.  Either way, Apple walks away with a clear albeit costly victory over Google and Samsung.

Looks like Steve Jobs was right after all.


kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus