Samsung's legal woes threaten to hurt tablet, chips sales

SEOUL, South Korea - An intensifying legal battle between Samsung Electronics Co and Apple Inc is expected to crimp growth at one of the fastest-growing businesses of the South Korean company, while threatening to worsen business ties with the company's largest customer.

The two technology giants have been locked in an acrimonious global battle over smartphone and tablet patents since April, and Apple has successfully blocked Samsung from selling its latest tablets in Germany and some smartphone models in the Netherlands.

Apple has also forced its rival to indefinitely delay launching its new Galaxy tablets in Australia, where a court will give its ruling this week.

Another loss could dent Samsung's ambitious attempt to close the gap with Apple in the global tablet market. The Galaxy gadgets, powered by Google Inc's Android operating system, are seen as the biggest challengers to Apple's mobile devices.

"Samsung's tablet business will be most affected and its chip business will also take a hit as Apple moves to diversify away from Samsung to the likes of Toshiba," said Nho Geun-chang, an analyst at HMC Investment Securities.

Samsung supplied Apple with about $5.7 billion in components last year, some 4 percent of Samsung's total sales. Apple's portion grew to 5.8 percent of Samsung's sales in the first quarter, driven by booming iPad and iPhone sales, which Samsung supplies chips for, along with Japan's Toshiba Corp.

Apple and Samsung are fighting for the top spot in the smartphone market, having overtaken the market leader for the past decade, Finland's Nokia Corp, in the second quarter. Samsung still trails in tablet sales, where Apple racked up 14 million iPad sales in the first half compared with analysts' sales estimates of about 7.5 million Samsung tablet products for all of this year.

Samsung and Apple will square off in a more significant US court hearing next month about an injunction case.

Analysts said what may become a long-term challenge for Samsung, is losing chip orders from Apple. "For Samsung, (the) biggest concern is reduced orders from Apple. Without Apple's big backing, it would be difficult for Samsung to boost its chip market share sharply," said Nho at HMC.

"Apple is leveraging the fact that it's got alternative suppliers. They may offer inferior or more expensive components but it's something consumers barely notice and something Apple can successfully use to pressure Samsung."

Samsung's smartphone business has been growing rapidly, powered by its flagship Galaxy lineups. Some analysts expect Samsung to overtake Apple as the world's biggest smartphone vendor and report record profits in July through September, as it has a much broader lineup than the high-end focused Apple.

Samsung's smartphone sales soared more than 500 percent in the second quarter, easily eclipsing Apple's 142 percent growth, though Apple sold about 1 million more units. Nokia sales fell 30 percent.

Samsung and Apple are suing each other in nine countries over 20 cases. Apple fired the first salvo in April by suing Samsung in a California court, saying the Galaxy lineup devices infringed on its mobile technology patents and design. Samsung shot back with claims of its own.

Despite the global court cases, both companies could end up settling the cases, HSBC Holdings PLC said in a note. "The most likely scenario is an out-of-court settlement, after a long-drawn IP battle ... As in the case of the Nokia-Apple dispute, this issue too is likely to be settled out of the court, after a long-drawn legal dispute," HSBC analyst Daniel Kim said.

Reuters