http://www.businessweek.com/articles/2012-08-27/apples-samsung-win-slams-asian-phone-makers

Smartphones

Apple's Samsung Win Slams Asian Phone Makers


A visitor photographs the side profile of a Huawei Technologies Ascend D quad mobile phone at a launch event prior to the Mobile World Congress exhibition in Barcelona, Spain.

Photograph by Chris Ratcliffe/Bloomberg

A visitor photographs the side profile of a Huawei Technologies Ascend D quad mobile phone at a launch event prior to the Mobile World Congress exhibition in Barcelona, Spain.

Samsung wasn’t the only Asian smartphone maker to suffer through a Black Monday. The Suwon (South Korea)-based company’s shares plunged 7.5 percent on the first day of trading after a jury in California ruled on Friday that Samsung must pay more than $1 billion to Apple (AAPL) for violating six of its patents. With the defeat calling into question the ability of other Android players to fend off the lawyers from Cupertino, the pain spread to other parts of the Asian smartphone world: In Hong Kong, for instance, the share price of ZTE, the largest publicly traded maker of smartphones in China, fell 7.1 percent. In Taiwan, the shares of Samsung rival HTC (HTCKF), already beaten down 47 percent this year after enduring patent battles of its own against Apple, fell another 2 percent. “In general, it seems the Android camp is losing the patent wars,” says Dennis Chan, an analyst in Taipei with Yuanta Securities.

But for some Chinese phone makers, there may be short-term opportunity in the ruling, as well.

The timing of Apple’s victory is especially problematic for Samsung (SSNGY) and others. Apple will soon be unveiling its iPhone 5, and its resounding victory over Samsung on Aug. 24 adds a huge amount of uncertainty for Samsung and other Android vendors at a time when they were already going to be on the defensive as Apple rolled out its much-anticipated new model. Those companies may now have to go back and figure out how much they need to change in their phones to keep them from falling afoul of the patent police. “There is going to be complete lack of clarity,” says Kishore Suratkal, an analyst in Hong Kong with Religare Capital Markets. “That is a big deal heading into iPhone 5 season,” he adds. “It just pushes back their ability to introduce products.”

Samsung says it is not giving up its fight. The company will ask U.S. District Judge Lucy Koh to overturn the verdict. If she doesn’t, the Korean company will appeal, Samsung spokeswoman Mira Jang told Bloomberg News in an e-mail. “We trust that the consumers and the market will side with those who prioritize innovation over litigation, and we will prove this beyond doubt,” the company said in a memo posted on its blog on Monday.

Some of Samsung’s rivals might enjoy a boost from their competitor’s setback. Bucking the trend among most of the Asian smartphone makers, the share price of LG Electronics actually rose in Seoul trading, up nearly 3 percent. Like LG, Chinese companies like ZTE and privately held Huawei Technologies that have struggled to make inroads against Apple and Samsung in the U.S. market may suddenly be able to take some business away from Samsung. If the court issues an injunction against the sale of some Samsung phones, “then of course some consumers will buy smartphones from the Chinese guys,” says Leping Huang, an analyst in Hong Kong with Nomura International (NMR).

One thing that might save the Chinese for now is Apple’s desire to focus on bigger threats like Samsung and HTC that compete at the high end of the market, says Cynthia Jinhong Meng, an analyst with Jefferies Hong Kong. “Will they go after ZTE and Huawei immediately? We don’t think so. They are playing at the low end of the market—at best, mid-end.”

As the next stage of the patent wars begins, the Chinese might have another card to play. It’s one thing for Apple to take on a Korean company like Samsung or a Taiwanese company like HTC. Apple doesn’t have to worry too much about losing out in Samsung’s or HTC’s home market, which isn’t large enough to deter the U.S. company from taking legal action. Going after a company from China—Apple’s second-largest market—is another matter, according to Huang. “You sue a Chinese company,” he says, “the problem is, you will have the risk of losing market share in China.”

Chinese companies aren’t defenseless in the patent wars, either. Both ZTE and Huawei have patents of their own for fourth-generation cellular technology that might prove useful, since companies in intellectual-property disputes sometimes make problems go away by swapping patents, says Meng. Those might be of little value against Apple, though. Yes, the jury awarded Apple over $1 billion from Samsung, but the case wasn’t about money, she says. “Apple never really wanted the money,” says Meng. “They wanted to stop the shipments.”

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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