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Apple Loses Against HTC

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After winning back-to-back injunctions against Samsung, Apple Inc. (AAPL) suffered major defeat in a patent related case against Taiwanese handset maker HTC simultaneously in UK and U.S., reported Bloomberg.

In the London High Court, Judge Christopher Floyd sided with HTC and ruled three of the four patents contested by Apple as invalid. The judge also ruled out Apple’s claims that HTC had infringed upon the patents of the iPhone maker. The patents in question were related to certain touch screen technology used in smartphones.

It is worth noting that Apple’s market share in UK had shrunk considerably from 25% in March 2012 to 19% in June 2012, according to market watcher GfK, on account of Samsung’s new Galaxy S III and rumors of the upcoming iPhone 5.

Coming to the home turf, Apple’s bid of banning HTC phones, which includes One X and EVO 4G LTE, in the U.S. was rejected by the U.S. International Trade Commission. Apple noted that HTC violated a patent order issued in December last year.

Over the last couple of years, Apple has been highly vocal about saving its intellectual property from misuse and violations. The company has been aggressive in filing lawsuits against other handset makers such as Samsung and HTC in order to protect its patents. Apple has accused these manufacturers of blatantly copying its iPhone and iPad designs.

So far, these lawsuits have yielded mixed results for Apple. Although it won some cases against Samsung, Apple has lost a couple of cases against Motorola. The defeat against HTC will be a major negative for Apple, as the contested patents being rendered invalid by the court would dent Apple’s future actions regarding its intellectual property disputes and other technology patents.

However, the company’s recent wins over Samsung in banning the Galaxy Nexus range of smartphones in U.S. is a positive for Apple. The unavailability of Nexus smartphones gives Apple a chance to increase its market share.

We believe that Apple remains the biggest growth story based on its product pipeline, popular apps, iCloud, iPhone 4S, the new iPad, Apple TV, and a loyal customer base.  With solid balance sheet and robust revenues, we expect Apple to outperform its peers in the long run.

Moreover, Apple’s ability to spur the popularity of its products in developing nations, where pricing is often an important consideration, will go a long way toward deciding the company’s future growth. Apple’s sizeable cash balance will no doubt come in handy.

The company is entangled with patent related lawsuits against several companies such as Samsung, and Microsoft Corp. (MSFT). Legal issues may be expected to act as a headwind going forward.

We have an Outperform recommendation over the long term (6-12 months). Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term.

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