BREAKINGVIEWS - Samsung's stock swoon overstates Apple triumph

HONG KONG Mon Aug 27, 2012 3:32pm IST

Samsung Electronics' Galaxy Note is displayed at a store in Seoul August 27, 2012. REUTERS/Lee Jae-Won

Samsung Electronics' Galaxy Note is displayed at a store in Seoul August 27, 2012.

Credit: Reuters/Lee Jae-Won

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HONG KONG (Reuters Breakingviews) - Investors have overreacted to Samsung Electronics' (005930.KS) court defeat by Apple (AAPL.O). The Korean group's market value dropped by up to $12 billion after a California jury fined it $1 billion for infringing its U.S. rival's patents. But even if the damages triple and Samsung is banned from selling phones in the United States for a year, it won't lose as much as that. And it's still kicking Apple in a more important market where patents aren't in dispute - China.

The ruling does present risks. The judge could triple the damages, and Apple could win an injunction blocking Samsung from selling its phones and tablets in the United States.

The U.S. ruling could also set a precedent though there's no reason to believe the jury's verdict will influence other cases in Europe and Japan. Besides, the most important market is one where Apple isn't suing. Samsung's 21 percent share of China's smartphone market, already the world's largest by units, is almost triple Apple's, according to research firm IHS.

Though Samsung doesn't break down sales, court filings suggest the United States only accounts for about 4 percent of its global smartphone revenue. Even if the damages in the court case treble and Samsung can't sell another phone in the United States for a year - the time the company would need to design and release new non-patent infringing models - the financial hit would at most be about $4.2 billion. That's roughly what Samsung earns from smartphones and other mobile devices in just three months.

Samsung and Apple have a love-hate relationship. Though they compete in smartphones and tablets, Samsung is also key supplier of chips and screens to Apple. Arguably, Apple needs Samsung more than vice versa. About 25 percent of every iPhone is Samsung-made, while Apple accounts for only about 5 percent of Samsung's total revenue.

Moreover, it's not as if the threat from Apple has come out of the blue. Samsung's stock has been trading at roughly 8 times projected earnings, largely on fears that Apple might somehow block Samsung's products or change suppliers. Korean competitor LG Electronics (066570.KS) trades at about 14 times and Apple at 15 times.

Even if Samsung suffers a big financial blow, its shares would still be trading at less than 10 times earnings and below the break-up value of its businesses. Investors shouldn't let one bad Apple spoil their Samsung holdings.

CONTEXT NEWS

- Samsung Electronics shares fell as much as 7.5 percent on August 27, knocking the company's market capitalization by more than $12 billion.

- A jury at a U.S. federal court in California found on August 24 that Samsung had copied critical features of the Apple's iPhone and iPad and awarded Apple $1.05 billion in damages. The verdict could lead to an outright ban on sales of key Samsung products in the United States.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Peter Thal Larsen and Katrina Hamlin)

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