Apple and Samsung are again squaring off in the legal ring. But this is a sideshow. The more pressing issue is that the days of easy money in the smartphone business are over

April 16, 2014 Leave a comment

Apple, Samsung Prize the Fight

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DAN GALLAGHER

April 1, 2014 3:36 p.m. ET

Apple AAPL +0.91% and Samsung are again squaring off in the legal ring. It may be time to shake hands and call it a draw.

Trial proceedings, which kicked off Monday in a federal court in California, is centered on five software patents used in smartphone operating systems that Apple claims Samsung has infringed. Samsung contends it licensed the technology through Google‘sGOOG +1.83% Android operating system. Apple wants more than $2 billion in damages and an injunction against Samsung devices using the technology.

But this is a sideshow. The more pressing issue is one that won’t get solved in a courtroom: Namely, that the days of easy money in the smartphone business are over.

Growth in developed markets has slowed, and emerging markets don’t offer the same fat profit margins. Both Apple and Samsung used their size, clout and early-mover advantage ruthlessly—capturing leading market share and the majority of available profits. About half of all smartphones sold globally last year were from either Apple or Samsung, according to IDG.

Both are now struggling to develop new classes of products that can rejuvenate sales growth. Court victories won’t do the trick.

For Apple, continuing to press the legal fight also runs a risk of affirming a belief by some that it can’t get past the death of Steve Jobs. The hot-tempered Mr. Jobs had wanted to “go thermonuclear” on Android and device makers that use it, believing they had copied the iPhone.

Since his death in 2011, Apple has largely hewed to that strategy, pressing its case against Samsung, HTC 2498.TW -0.32% and others in multiple courts across the globe. In its fight against Samsung, the result has been some limited victories—being appealed—with financial awards that won’t make a dent in the coffers of the Korean electronics giant.

Long-running legal wars are costly and divert management’s attention. The wireless industry has seen plenty of patent battles before. And they have typically generated settlements that free all sides to focus on building their businesses. The current fight isn’t likely to be much different; there is little chance of Apple knocking out Android, which accounted for nearly 80% of smartphones sold last year, according to Strategy Analytics.

Meanwhile, both Apple and Samsung are trying to extend their leads into new areas of mobile computing, such as smartwatches. Resolving legal spats will allow both to focus on the future rather than argue about the past. Better to create new opportunities, even if those lead to even more lawsuits.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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