Jury Awards $290.0 Million to Apple Inc. (AAPL)

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Apple Inc (AAPLAnalyst Report) recently received a favorable ruling against its arch rival Samsung, after a U.S. jury ordered the South Korean company to pay $290.0 million as damages to the iPhone maker. Apple now owes more than $900.0 million to Samsung.

In a 2012 verdict, 26 Samsung devices were found guilty of infringing Apple patents and the company was asked to pay $1.05 billion as damages by the then jury. However, U.S. District Judge Lucy Koh upheld approximately $640.0 million of that verdict and ordered a retrial, citing errors in calculating damages on 13 Samsung devices.

The retrial held in San Jose, Calif. federal court recalculated the damages and awarded $290.0 million to Apple, much less than the original penalty. This was lower than Apple”s demand of $380.0 million, but much higher than Samsung’s estimated figure of $52.0 million.

This is the second consecutive win for the company within a short span of time. On Nov 18, the U.S. Court of Appeals ruled that Judge Lucy Koh should reconsider Apple’s request for a U.S. ban on Samsung products that were found guilty of infringing patents.

Last December, the U.S. Judge had denied Apple’s request for a ban on 26 Samsung products. The appeals court ruled that out of the 6 infringed patents, 3 qualified for calling a ban on Samsung products.

However, the legal fight between the two companies doesn’t end here, as Samsung plans to challenge the retrial verdict. Moreover, both Apple and Samsung are scheduled to meet in court in Mar 2014 in a new trial for examining more recent smartphones that include iPhone 5 and Galaxy S3.

Although these are great moral victories for the iPhone maker, they do not provide significant competitive benefit apart from the penalty. The recent legal victories are related to products that Samsung does not sell anymore.

Apple is facing significant competition in most of the markets from Google’s (GOOG) Android operating system. The company continues to lag Samsung in worldwide smartphone shipment. As per data available from IDC, Apple had 13.0% market share compared with Samsung’s 31.0% at the end of the third quarter of 2013.

Despite a surge in iPhone unit sales (up 26.0% year over year), Apple’s fourth quarter result has failed to impress due to declining gross margins and lower-than-expected U.S. revenues. Moreover, lack of innovative products has been the major factor negatively affecting Apple’s growth trajectory in recent times.

The significant decline in revenues in the U.S and Rest of Asia suggests market share loss to low cost smartphones and tablets produced by Samsung, HTC, LG, Huawei and Amazon (AMZN). Besides Samsung, we expect Apple to face stiff competition from Microsoft (MSFT) in the U.S. smartphone market going forward.

Nevertheless, we believe that the refreshed product line-up will boost top-line growth in the near term. Additionally, the shareholder friendly moves such as higher dividend payment and expanded share buyback are expected to drive the stock going forward.

Currently, Apple has a Zacks Rank #3 (Hold).

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