After throwing a lot of punches at each other, finally the day arrived when the world’s two biggest smartphone makers broke the ice in settling a long-drawn legal battle. Yesterday, Apple (NASDAQ:AAPL) and its South-Korean archrival Samsung (SSNLF) reached an agreement to settle their patent lawsuits in the countries outside the U.S.
This indeed comes as good news for the investors, as well as for the company’s performance. Although some feel that the tension between the two tech biggies may cool down to an extent, several others remain sceptical since the companies have not entered into any cross licensing agreements, hinting that the current peace might be short-lived. Here’s what the settlement has in store for the two biggies and what we can expect to see in the days to come. But first, let’s have a quick recap of the entire issue.
- Warning! GuruFocus has detected 3 Warning Signs with AAPL. Click here to check it out.
- AAPL 15-Year Financial Data
- The intrinsic value of AAPL
- Peter Lynch Chart of AAPL
The duo has been in a legal tussle since 2011, when Apple accused Galaxy-maker Samsung of copying technologies of iPhone. In retaliation, Samsung sued Apple for patent infringement in seven countries across three continents. The countries outside the U.S. that witnessed the battle include Italy, the Netherlands, Britain, France, Germany, Australia, South Korea and Japan. While Apple was protective about its smartphone domination, Samsung was aggressive about its smartphone as well as tablet exposure and, as a result, sued Apple for infringing technologies used in its iPhone and iPad.
Driven by the growing severity of anti-trust battle between the two legends, European Union (EU) voluntarily initiated an investigation in 2012 which revealed that most of the patents were standard and essential for manufacturing phones. Eventually, the EU put a ban on Samsung’s allegations against Apple and asked the Korean phone-maker to drop all injunctions against Apple. The EU was clear with its stand that any violation could attract a huge fine for Samsung. Samsung was prompt in complying with EU’s decision and agreed not to seek any injunction over any smartphone makers for five years in Europe.
Benefits of the settlement
Lee Seung Woo, an analyst of financial services firm IBK Securities, feels that the decision could be owing to shun the growing competitive pressures that both the companies are sensing. As per his words, "The whole industry paradigm is changing. Apple and Samsung have no time to waste, and it’s time to get back to work."
Lee’s words can’t be denied as competition in the smartphone market is really getting tough with the entry of more and more cheap phones with almost similar features like iPhone and Galaxy.
The ceasefire would allow the companies to focus more on growth areas and opportunities. Analysts think that Samsung could be benefitted most from this decision as it can formulate strategies to regain its lost crown in China. Xiaomi, the Chinese smartphone-maker, recently toppled Samsung to become the top seller in the world’s largest smartphone market.
On the other hand, Apple can be busy in finding ways to make up for the losses it is going to encounter from the Chinese market. China has barred its government agencies from buying Apple’s products due to security concerns.
Finally, the truce can actually save some money for the companies. Usually, legal proceedings attract huge charges and could end up paying huge damages. In absence of such charges, both the companies can report better profits.
Although it seems the war between Apple and Samsung is cooling off, both the tech giants will continue to be involved in arm wrestling from time to time. Both Apple and Samsung owe damage charges to each other. While Apple has won rulings in the two cases, it lost in one case. The issues outside the U.S. may have been resolved, but there are plenty more within the U.S. that can spur future tassels.