As Samsung Electronics Co. goes to court this week with Apple Inc. over product-copying allegations in the biggest market yet, the U.S., both companies' latest quarterly results make clear what's financially at stake.
Samsung on Friday announced a record quarterly profit, its second in a row, of 5.19 trillion won ($4.6 billion), up 48% from a year earlier, for the April-to-June period. Its telecom unit experienced a 60% jump in revenue and near-tripling in operating profit, accounting for nearly all of the company's financial improvement.
Meanwhile, Apple earlier last week reported a profit of $8.8 billion for the same three months, a figure that disappointed analysts despite being a 21% increase from a year earlier. Apple fell short of forecasted sales of its iPhone, in part, executives said, because customers expect a new version will soon appear.
However, attorneys for Apple will lay out a different explanation in a San Jose, Calif., federal court this week. 'Samsung has reaped billions of dollars in profits and caused Apple to lose hundreds of millions of dollars through its violation of Apple's intellectual property,' Apple's lawyers claimed in court documents filed last week.
Barring a last-minute settlement, Apple and Samsung are heading to trial in the venue where Apple in April last year first sued its South Korean rival on allegations of illegally copying technical features and designs of the iPhone for its own flagship line of smartphones, called Galaxy S.
Samsung countersued in five other countries and the battle spread from there to several dozen cases in nearly a dozen countries.
In the time since the original suit, Samsung has surpassed Apple in unit shipments of smartphones, analysts say. With Samsung's other products like TVs, semiconductors and display components experiencing little growth or cyclical downturns, the smartphone business has emerged as the biggest influence on the overall health of the world's largest technology manufacturer by revenue.
Meanwhile, Apple has seen its growth in the cellphone industry slow, though it has maintained its industry-leading profit margins.
Samsung stopped disclosing data about its cellphone shipments early last year. But following Samsung's quarterly results announcement on Friday, market analysts estimated it shipped just over 50 million smartphones, almost twice as many as the 26 million iPhones Apple said it shipped in the quarter, and that they accounted for more than half of Samsung's overall shipments of about 95 million cellphones.
In its court filing, Apple said it is seeking $2.525 billion in damages from Samsung. That is about 15% of the $17 billion operating profit from Samsung's telecom division in the two years since it released the first version of the smartphone Apple says infringes on its design─and about 8% of all of Samsung's operating profits in that time.
In Samsung's own court filing, also made last week, the company's lawyers called Apple's damages request 'absurd.'
'Apple seeks to exclude Samsung from the market, based on its complaints that Samsung has used the very same public-domain design concepts that Apple borrowed from other competitors,' reads the Samsung brief. 'Apple, which sold its first iPhone nearly 20 years after Samsung started developing mobile phone technology, could not have sold a single iPhone without the benefit of Samsung's patented technology.'
Samsung made no additional statements about the Apple lawsuit in an analyst conference call with company officials Friday─and investment analysts didn't bring it up. They instead focused on a slight decrease in the operating profit margin of Samsung's telecom unit, to 17.4% from 18.4% in the first quarter. In response to questions, executives attributed the decline to weakness in its smaller business of selling telecom equipment to network providers and said that smartphone margins grew.
Pressed to estimate the division's operating margin for the current period, telecom executive Kim Han-joong said he expected it to be flat compared with the second quarter, according to a transcript of the conference call by Thomson Reuters StreetEvents.
In absolute terms, however, smartphones are expected to keep driving Samsung's profit upward for the rest of the year.
Hanmag Securities analyst Y.B. Oh said he expects the telecom division to post an operating profit of 4.8 trillion won in the current July-to-September period, up from 4.2 trillion won in the just-ended quarter, as sales of Samsung's flagship Galaxy S III smartphone accelerate from the May to July launch and ramp-up.
Analysts forecast Samsung's overall operating profit will exceed 7 trillion won for the current quarter, likely driving the company to another quarterly net profit record.
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