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Apple Loses, Nexus Ban Lifted

Zacks Equity Research

In the latest development of Apple Inc. (AAPL) versus Samsung’s fight related to the patent infringement case, the iPhone maker is on the unfavorable side as the U.S. Court of Appeals for the Federal Circuit lifted the pre-trial injunction on the sale of Samsung’s Galaxy Nexus smartphones in the country, according to Reuters.

Apple had been fighting a legal tussle against Samsung for the infringement of four patents relating to the design and certain features of the device. However, the court did not lift the pre-trial ban on Galaxy 10.1 tablets. The trial for the case begins on July 30, 2012.

The Galaxy Nexus range of smartphones is a collaborated effort of Samsung and Google Inc. (GOOG) and is powered by the latest Android operating system of “Ice Cream Sandwich”, which debuted in U.S. in December last year. Getting banned in the U.S. would have made serious implications on the company’s sales figures in the near term.

This ruling comes after Apple suffered defeat in a patent related case against Taiwanese handset maker HTC in the U.S last week. The U.S. International Trade Commission rejected Apple’s request for a ban on HTC handsets, which includes One X and EVO 4G LTE, in the country.

Apple has been protective about its designs due to the the fact that iPhones have been a major constituent of Apple’s top line. The tech bellwether sold 35.06 million units of iPhone during the last concluded quarter, representing a year-over-year growth of 88.0%. Revenues from iPhone handset sales, accessory sales and carrier payments skyrocketed 85.0% year over year to $22.69 billion in the last concluded quarter.

However, Samsung with a 29.1% market share in the smartphone market has outperformed 24.2% market share of Apple in first quarter 2012 estimates, according to IDC. The more astonishing part was that Samsung’s year-over-year growth in units shipment was a whooping 267% compared to Apple’s 88.7% over the same period of time. Therefore, the fact that Samsung’s Android-powered smartphones are finding larger popularity globally is a major headache for Apple.

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, and 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 against Motorola and HTC recently.

Despite yielding mixed results in the patent litigation cases against various companies in different countries, 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.

We maintain our 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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