Apple, Major Patent Holders Have The Most To Gain
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Samsung (SSNLF) lost its battle with Apple (NASDAQ: AAPL) when a jury found in favor of Apple's claims that Samsung infringed on several of its patents and sought a permanent injunction against eight of Samsung's smartphones - the company's most profitable, at least when looking at the first six months of the year. All in all, the Court found that 28 of Samsung's smartphones violated Apple's intellectual property. Samsung intends to fight the injunction, saying "We will take all necessary measures to ensure the availability of our products in the U.S. market."
In any case, the Court ruling has obvious impact for Samsung and Apple - but there are several other players poised to be affected by the news. Google (NASDAQ: GOOG) could be affected. Samsung's Galaxy and Droid models are both based on the Google technology Android. Samsung has historically relied heavily on that technology. And, remember, it was the HTC smartphones that were running Android that copied Apple's iPhone according to the patent-infringement ruling in December. Steve Jobs claimed before that Android "ripped off the iPhone" and Apple seems to be proving that by winning its patent infringement cases against the smartphones that employ the Android technology.
Samsung appears to be getting off the Android ride. Just look at all the Microsoft (NASDAQ: MSFT) Windows phones and tablets Samsung is launching - otherwise known as its AITV line. It looks like Samsung may be betting on a different horse, and doing so aggressively. In turn, this affects Nokia (NYSE: NOK) which, according to the Wall Street Journal, "receives regular payments from Microsoft to develop phones using its software." Aside from the obvious competition presented by the smartphones themselves, Samsung even moved in and pushed its Windows 8 product launch to get a jump on Nokia's launch of the same. Nokia had been expected to be the first company to unveil devices running Windows 8.
Looking at market share, Samsung has almost 33% of the global smartphone market in the second quarter - nearly twice Apple's 17% share and several times Nokia's less than 7% share. The question is how much of that market will remain after the dust settles. Moreover, what about the operating system? Right now, just over 50% of the smartphones in the U.S. run Android, with just under 32% running Apple OSX, slightly over 11% running Research In Motion (RIMM)'s Blackberry OS, and roughly 4% running Windows, but those numbers are bound to change if Apple keeps suing and winning cases against Android phones. Already, analysts are forecasting that Windows will become the second most popular mobile operating system in the world by 2016, edging out Apple. Android is expected to remain on top, but that report was dated early June - more than two months before the Samsung verdict.
There is also tablet technology to consider. Samsung has a much smaller share of the tablet market at just over 9%, compared to Apple's almost 70%. It may be more than twice Amazon.com (AMZN)'s just over 4% share, but Amazon's Kindle Fire is still relatively new and this Apple suit will likely knock Samsung down a few pegs - but where does it go from here?
Windows has a strong future if for no other reason that the company's long history with proprietary technology. The same goes for Apple - that company created an entire universe centered on its products and technology. Google may find that Android loses steam if these patent cases continue. But, there is a piece of strategy Google has in its pocket - namely, it’s "the enemy of my enemy is my friend" strategy.
Google is suing Apple; or rather its newly-acquired Motorola Mobility unit is suing the company. Google claims "that features on some Apple devices, including the Siri voice-recognition program, infringe its patents," writes Bloomberg. "The complaint at the U.S. International Trade Commission claims infringement of seven Motorola Mobility patents on features including location reminders, e-mail notification and phone/video players," and it "seeks a ban on U.S. imports of devices including the iPhone, iPad and Mac computers" - a big problem for Apple given its products are made in China.
The suit continues the war between Motorola Mobility and Apple that began in 2010 after licensing talks between the two companies failed, so the dispute is long standing. "This is just the latest in a series of patent beefs between the parties," writes Forbes. "Not coincidentally, the iPhone 4S and new iPad 4G use Qualcomm (QCOM) chips and are not affected by Motorola's claims."
Right now, Apple and Google are in talks. "Word is that Apple CEO Tim Cook and Google chief Larry Page have already had one phone discussion about their differences with patents, while executives from both companies are reportedly working out the various points of discussion between the two," writes Insider Monkey. "A second call between the two head honchos that was slated for this week was canceled, though no reason was given." So, time will tell.
Until then, investors would do best to stay on the side of those companies that hold the biggest patents and proprietary technology - namely Google, Apple and Microsoft. I would recommend staying away from the companies that license the technology. There is too much of an exponential effect. For instance, Samsung built its Galaxy products around the Android system. If it can't use those technologies, those products are rendered useless, at least in terms of what the company can sell. By focusing instead on the "keepers of the keys," so to speak, investors can enjoy a more stable return - after all, companies like Apple and Google can change their software much more easily than companies like Samsung or Nokia can their technologies.
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