Samsung's Value Recovers After Lawsuit

By Greg McFarlane | September 03, 2012 AAA

Turn over your Android phone and there's better than a 2-to-1 chance that you'll see a Samsung logo. As you might have heard, Samsung recently lost a court decision to Apple (Nasdaq:AAPL). Long story short, a United States court ruled that Samsung ripped off Apple's designs and thus must fork over $1.049 billion. As to Apple's reasons for instead not suing Google (Nasdaq:GOOG), owners of Android, why bother? By winning its case against a less formidable, foreign opponent, Apple ultimately got what it wanted: Google now must design workarounds to the software patents that it and Samsung violated. In the meantime, Apple wants to halt sales of several Samsung phones: the Galaxy S, Galaxy S2, Galaxy Prevail and Droid Charge. (A different court will hear that case in December.)

Apple won its case in a U.S. District Court on August 24. (There are several other cases pending throughout the world.) The next day, Samsung stock fell 7.5%. A week later, the company went into receivership and was never heard from again.

SEE: A Primer On Investing In The Tech Industry

Of course that last part didn't happen. In fact, within a week Samsung had regained most of that one day's losses.

Samsung Is More Than Phones
This is an object lesson on the foolishness of panic, and why even coming out on the losing end of a high-profile lawsuit for something relatively minor isn't a compelling reason to dump a healthy company's shares. It's easy to lose sight, seeing as the other litigant in the case is famous for being the largest company in the world, but Samsung is mind-blowingly, galactically profitable. Also, Samsung Electronics, the defendant in the case, is but a subsidiary of its namesake South Korean conglomerate. Samsung Electronics is its highest-profile subsidiary, but a subsidiary nonetheless. Samsung Electronics also manufactures more televisions than any company in the world and more semiconductors than all but one (Intel); and each of those businesses is more profitable than the smartphone racket.

SEE: It's Raining Lawsuits: Do You Need An Umbrella Policy?

That's not the half of it. Samsung Group, the parent company, includes the world's second-biggest shipbuilder, one of its largest life insurers, and that's to say nothing of its advertising, construction and weapons technology concerns. South Korea has one of the largest economies in the world and Samsung makes up a lot of it. Losing a billion-dollar patent lawsuit, while not something Samsung Group would hope for, will not have a large impact on the company's fortunes. Besides, its lawyers are appealing the verdict; Samsung might not have to pay a dime. But our smartphones are almost appendages at this point and thus of profound importance, right?

There really should be a word for this - the undue focus placed on business that focuses on the end-user or retail level (Facebook (Nasdaq:FB), for instance), rather than on the vastly larger businesses that most of us never knowingly encounter in our daily lives.

Samsung Group trades on several foreign exchanges in Germany, Singapore and the United Kingdom. On the Deutsche Börse, it trades at closer to four times earnings. While Apple Inc. v. Samsung Electronics Co., Ltd. sent the former's stock rising while the latter's temporarily fell, that's no bellwether of a long-term trend for either litigant.

SEE: Patent Wars And Their Effect On Your Wallet

Overarching Influences
However, nothing happens in a vacuum. Some of the companies affected by the lawsuit weren't anywhere near the courtroom. In the immediate aftermath of the ruling, Samsung Electronics announced it would be doubling up on its partnership with another American consumer products/technology titan that's also made a mobile handset or two in its day - the venerable Microsoft (Nasdaq:MSFT).

Within several days, Samsung unveiled multiple new phones and tablets running Windows 8, the latest incarnation of Microsoft's ubiquitous operating system. Doing so gives Samsung a chance to publicly diversify its product line, draws attention away from the Apple ruling and gives Microsoft a chance to indirectly fire back at its longtime rival in Cupertino. Perhaps the most noteworthy point of all? No one is going to confuse Windows phones with anyone else's models anytime soon.

The Bottom Line
Of course, that's only in the short term. It won't be until December that another court will begin hearing whether the infringing devices should be banned from sale; and the federal appeals court in Washington, D.C. could easily go a year before listening to Samsung's appeal of the original ruling. In the meantime, investors looking to buy or sell Samsung would be wise to let factors other than court rulings dictate their positions.

Greg McFarlane neither owns nor is shorting any Samsung stock.

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