Last Friday, May 2, a California court ruled in Apple’s favor during an ongoing (and ridiculous) patent lawsuit against South Korean tech giant Samsung. The case, brought by Apple (APPL), accused Samsung of four patent infringement violations. After the courts deemed Samsung had knowingly violated U.S. Antitrust laws, Apple was awarded $119.6 million in damages - a fraction of the $2.2 billion they sought. However, the courts did not rule that Samsung must stop selling devices that were found to violate Apple's patents. The jury also ruled that Apple had infringed on a Samsung patent, and ordered Apple to pay $158,000 in damages.
The so-called “Holy War” between Apple and Samsung long precedes this 2012 legal affair. In it's first lawsuit, Apple was awarded almost $1 billion in damages from Samsung for patent infringements. Apple has long accused Samsung of developing its smart phones around Apple's prominent designs. Apple has also emphasized its certainty that Google's (GOOG) Android OS, used by Samsung, was directly copied from Apple's popular iOS. Many people expressed how this reduced Apple's competitive advantage in the mobile device market, none more vocal about the issue than Steve Jobs. Regardless, Samsung advocates that consumers buy its phones because of their bigger screens and better operating system (aspects not discussed during the legal proceedings). While Apple was the first company to successfully produce and distribute a smartphone, Samsung has since gained significant traction.
Since 2009, Samsung has steadily increased its share of the smart phone market. According to CNET, the first quarter of 2014 was the first time in five years that Samsung did not actually increase its market share. However, Samsung still shipped 89 million smart phone units, roughly 31% of the smart phone market during Q1. This is more than double Apple's same quarter shipments, which totaled 43.7 million iPhones, or 17% of the market. This massive discrepancy begs the question: can Apple still compete with Samsung, and Google's Android operating system, outside of the courtroom?
For years, Apple has been accused of deteriorating product innovation (click here to read what our C.E.O. thinks of Apple). Its biggest innovations since Steve Jobs' passing haven't been revolutionary new products, but instead larger screens, the introduction of Siri, and a redesign of its iOS 7 operating system. Thus, Apple has seen its mobile phone market share fall as consumers flock to substitutes. Given Samsung's relatively cheap cell phone portfolio, the company appears to be the popular alternative. Furthermore, increased market saturation has led to greater reductions in Apple's mobile unit sales.
Part of Samsung’s success stems from its Android OS. Given the flexibility of Android, Samsung has developed an altered "in-house" OS design for its mobile devices. Understandably, many believe that these legal battles are actually between Apple and Google, not Samsung. Since Android is an open source platform, it is used by several companies, like Samsung, HTC, and LG, for their smartphones. As Google's Android system becomes more prevalent, Apple's iOS 7 will face an uphill battle. For reference, in April 2013, Time Magazine reported that Android devices comprised 70.1% of the cell phone market; this number now stands at 78%.
As Apple continues to compete, one is forced to think about what the future looks like for the Cupertino based company. Will Apple's stock plummet? Most likely not in the short-term. While it has lost traction in the smart phone market, one must remember that Apple is still the highest valued U.S. company, with a current market cap of $506.5 billion. Additionally, regardless of its troubles, Apple has also increased iPhone sales in almost every quarter. More importantly, Apple makes large changes to its smartphones every two years. This means that Apple is set to release an entirely revamped iPhone 6 by the end of the year. Such a move could easily catapult Apple back to the head of the smartphone market.