US jury's ruling to have limited long-term impact on Samsung

HONG KONG (Yonhap) -- A U.S. jury's ruling against Samsung Electronics Co. will have a minimal long-term impact on the Korean tech leader, as the ruling mainly covered its older smartphone models, investment banks said Monday.

A California federal jury ruled on Friday that Samsung Electronics infringed several of Apple Inc.'s patents for mobile devices, and ordered the Korean company to pay $1.05 billion in damages, an amount which can triple if the jury's finding that Samsung Electronics "willfully" infringed Apple patents is upheld. The world's two top smartphone makers have to wait for Judge Lucy Koh's final ruling, expected on Sept. 20.

"Unless Galaxy S3 sales are banned, we estimate the impact on Samsung's earnings wouldn't be significant, given that $1 billion represents less than 5 percent of its 2012 earnings and less than 1 percent of its market cap," said JJ Park, an analyst at JP Morgan.

"However, given ongoing uncertainty and noises associated with the ongoing legal dispute, we believe the stock is likely to witness a short-term correction and may move sideways until we see some visibility regarding Apple versus Samsung's legal dispute."

The jury decided some 20 of Samsung Electronics's smartphones and tablets violated Apple patents. The list, however, did not include the latest models, Galaxy S3 and Galaxy Note.

Deutsche Bank's Han Seung-hoon held a similar view, that the jury verdict will have mainly short-term effects on the South Korean manufacturer.

"We believe the jury verdict has near-term negative implications as Samsung may need to provision for the damages awarded to Apple," said the Deutsche Bank analyst.

"However, we note that the smartphones subject to the court ruling are older models and not the flagship models that Samsung is currently selling in the U.S. market, and as a result it may only have a limited impact on Samsung smartphones sales in the U.S. in the second half of 2012."

Han warned there are still uncertainties that remain as to whether Apple would also try to ban recent flagship models such as the Galaxy S3 and whether the U.S. jury verdict may influence other lawsuits in different countries.

Samsung and Apple together control more than half of the global smartphone market. In the second quarter, Samsung's market share stood at 32.6 percent, followed by Apple with 16.9 percent, according to market researcher IDC.

The two tech heavyweights have been locked in a series of legal suits, accusing each other of design and technology patent infringements on their key mobile devices, including Galaxy mobile devices, iPhones and iPads.

The epic battle began in April 2011 when Apple pointed an angry finger at Samsung for alleged infringements of design and technology patents. Samsung "slavishly" copied the U.S. company's iPhone and iPad products, the Cupertino, California-based firm said.

Samsung flatly denied the claim and struck back by lodging patent infringement suits against Apple with courts in Germany, Japan and South Korea that same month.

Following the initial squabble, the case has expanded into a multi-billion-dollar patent war that involves countersuits, preliminary injunctions and sale bans that span four continents.

Goldman Sachs said it does not see Samsung Electronics' competitive positioning in the smartphone marketing changing materially against other Android competitors or Apple after the jury verdict.

"Near-term share price corrections should be seen as opportunities to add to positions, in our view. We maintain our 'Buy' rating on Samsung shares," said Michael Bang, a Goldman Sachs analyst.

In the worst-case scenario, Samsung Electronics would see 13.7 percent of its 2013 operating profit being affected, Goldman Sachs estimated, in light of infringement damages of $3.15 billion, lost sales from the devices named in the lawsuit and a running royalty of $10 for mobile devices sold in the U.S.

This scenario translates to 1.32 million won ($1,163.5), about 9 percent lower than the U.S. investment bank's current target price of 1.45 million won for Samsung Electronics, Goldman Sachs said.

Meanwhile, Bank of America Merrill Lynch predicted Samsung Electronics, also the world's largest memory chip maker, would continue its chip supply to Apple despite the lawsuit.

Despite being embroiled in the heated rivalry, the two firms have been each other's key partners in the mobile device market. Samsung supplies display panels and chips for Apple's iPhone and iPad products.

"Samsung will likely maintain its supply of semiconductor chips to Apple regardless of this verdict, in our view. In fact, Apple's high reliance on Samsung components, such as chips, panels and various passive components, is a risk for Apple itself," said Simon Woo at the Bank of America.

"In our view, both companies will likely move towards new agreements that are win-win situations for both -- for example, Samsung makes fair royalty payments for old models and minimal running royalties for new products, which would ensure minimal impact on long-term earnings, while Apple ensures continuous supply of Samsung's high-quality components at competitive prices."

Samsung Electronics shares closed at 1,180,000 won on Monday, down 7.45 percent from Friday's close.