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Samsung shares seen a good buy despite patent verdict

posted 27 Aug 2012, 03:26 by Mpelembe   [ updated 27 Aug 2012, 03:26 ]

A possible billion-dollar payout to Apple sparked a selloff of Samsung shares, but the pain is unlikely to last.

ASIA-APPLE/SAMSUNG - Nine jurors, twenty-two hours, one billion dollars.

These are the numbers behind the biggest U.S. patent payout awarded in history.


"Apple's legal victory over Samsung is so crushing we're seeing a massive sell-off in the stock, 12 billion dollars wiped off off its market cap. But let me give you 5 reasons why you should take this as an opportunity, follow the smart money and buy into Samsung."

Number five: it's cheap. Samsung shares are down 12 percent in the last 8 days alone, and it's now trading at 6.8 times 12 month forward P/E, roughly half of that of Google or Apple.

Sanford C. Bernstein says the firms' earnings growth speaks for itself:


"We still have a strong outperform on the company. Our target price is currently 1.95 million. I still think this is the best buy in the entire tech sector right now."

Number four: market share. Apple is losing it, while Samsung is retaining its lead.

In part that's as buyers wait for the new iPhone 5 to land, but the numbers ain't good. Its piece of the global smartphone pie has shrunk from 24 percent in the first quarter to 16 percent in the second.

In China, soon to overtake the U.S. as the largest smartphone market, Apple is doing even worse, with its high-end-only offerings out of reach for low-income first-time buyers.

Coming in third: marketing. Over the course of the trial, Apple's bitter fight has inspired a flurry of front-page coverage, with expert after expert explaining just how alike the products from the two companies really are.

Samsung couldn't get better publicity if it paid for it. Now that may get the average Joe reconsidering why he's paying the Apple premium for his gadgets if cheaper Samsung offerings are nearly identical.

Number two: competition. From HTC to LG to Sony, the rest of the handset makers will now have to live in fear of the mighty Apple legal machine.

This case sets a dangerous precedent that may lead to further patent spats, phone injunctions, and costly settlements.

The other handset firms may now be tempted to split their offering into two lines - Android and Windows mobile, the unpopular but safe choice from Microsoft.

If consumer preferences don't change, these phones will end up in the bargain bin, widening Samsung's lead.

And the final reason: appeal. Now I'm not talking about design appeal, but rather, a legal appeal. This settlement may not stick, and Apple knows that.

According to a CNET interview, the jury sided with Apple on day one of the case, electing to ignore prior art on the pinch-zoom technique.

What's more, the foreman, a patent holder himself, told us that his peers wanted to ensure that damages against Samsung were sufficiently high to be painful.

As tech blog GrokLaw points out, that's arguably in contravention of two separate jury instructions to not punish the infringer.

Samsung's next move will be to ask the judge to dismiss the ruling, and failing that, appeal and fight on.

The next stop will be the Federal Circuit, which usually assigns 3 judges to a case instead of a jury. And they may not swallow the apple-flavoured Kool-Aid so easily.

And that's why you should be considering more, not less Samsung in your portfolio.

Jon Gordon in Hong Kong