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Samsung witness says Apple's damages closer to $519 million, not $2.5 billion

post #1 of 51
Thread Starter 
An expert witness called by Samsung has testified that, according to his calculations, Samsung's US profit margins were 12 percent rather than 35.5, meaning Apple's damages should be limited to $519 million, well below the minimum of $2.5 billion it is demanding.

According to reports by CNET and Reuters
Michael Wagner, formerly a partner at PriceWaterhouse, was called by Samsung to refute the calculation of Apple's expert witness Terry Musika, who had said his team spent 7,000 hours and $1.75 million to analyze Apple's damages.

"I can assure you, it's not me sitting at a desk with a calculator, doing calculations," Musika said in his testimony on Monday, in which he said Samsung had earned 35.5 percent margins over the period from mid-2010 through March 2012, for a total of $8.16 billion in U.S. revenue. Apple is seeking over $2.5 billion in profits from Samsung.

Under U.S. law, Apple can demand all of Samsung's profits on offending devices if the company is found to have infringed upon its design patents. In contrast, infringement of technical patents can only result in a demand actual damages.

Nine versions of Samsung financials

Apple charged that Samsung produced nine different versions of its financials during the evidence gathering process, something that Samsung's vice president of finance and operations Timothy Sheppard did not deny during Apple's cross examination.

Due to other delays by Samsung, its own expert had only three weeks to perform his calculations. Wagner testified, "I didn't know what I was rebutting," and said, "I had three weeks to do all my work. This was an enormous amount of work in three weeks."

Wagner said that Musika's "total calculation of total profits did not include the total cost to figure out the profits," explaining that Apple's witness had left out administrative costs as well as sales, marketing and research and development. He also charged that Apple had failed to account for its own supply issues in having enough iPhones and iPads to sell while Samsung was selling its own products.

Wagner also noted that his version of Samsung's profits assumed a period beginning April 2011, as opposed to Musika's which started its profit analysis the middle of 2010, a period twice as long.

One version of costs created especially for Samsung's witness

Under cross examination, Wagner admitted that Samsung had provided him cost information that was prepared by Samsung specifically in response to Apple's suit.

Under Wagner's calculations, Samsung earned a profit margin of just 12 percent on its high end smartphones and tablets at the subject of the lawsuit. Apple's Musika had calculated a profit margin of 35.5 percent.

Globally, over in the last quarter Samsung earned only half as much as Apple while selling twice as many phones, but most of its sales are lower end models that bear little resemblance to Apple's devices.
post #2 of 51

research and development costs. LOL

post #3 of 51

Release the P&L - I'm sure the masses can easily decide the GP...

post #4 of 51
With all the information coming out, it is not improving my opinion of Samsung at all. I have yet to read anything, on any site, that leads me to believe that they are being anything but deceptive in this case. I will be surprised if they are not found guilty. Not shocked, a court with a jury has a lot of leeway in their ability to rule on a subject. Right now, the data that is coming out of the trial shows what appears to be a willful infringement. But it could really go either way.
NoahJ
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post #5 of 51
Wait, what?! Samsung choose a witness who claims Samsung is guilty... but at a lower rte than Apple claims?

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post #6 of 51

How does the size of Samsung's profit margin affect the damage to Apple's earnings?

post #7 of 51
Quote:
Originally Posted by Banana Bonanza View Post

How does the size of Samsung's profit margin affect the damage to Apple's earnings?

Less profit means less damages. It's that simple. The offended party will be awarded whatever profit the offender got not what profit that was missed out on.
Edited by dasanman69 - 8/16/12 at 1:37pm
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post #8 of 51
Quote:
Originally Posted by Banana Bonanza View Post

How does the size of Samsung's profit margin affect the damage to Apple's earnings?


Exactly. I guess if I copied the iPhone and sold 10 million of them at break-even, there wouldn't be any damages at all, right?

post #9 of 51

Additional to the administrative fees, R&D, etc. I wonder if they factored in the fuel spent for apple employees coming to work, also the light bill, water bill and things like that, too.

post #10 of 51
They also argued that Apple could not keep up with the demand for their product at the time, obviously to show that the loss of income due to Samsung simply picking up Apples leftovers, was not damaging Apple as much as it otherwise might have... I am sure that is factored into damages as well.
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post #11 of 51

Aside from "cooked books" and other earnings anomalies..

 

35% margin is absurdly high for consumer electronics.  Maybe if you're controlling the supply chain and have a market lock (like Apple), you'll pull that type of rake. Otherwise, seems pretty dang high. 

post #12 of 51
Quote:
Originally Posted by Neo42 View Post

Aside from "cooked books" and other earnings anomalies..

35% margin is absurdly high for consumer electronics.  Maybe if you're controlling the supply chain and have a market lock (like Apple), you'll pull that type of rake. Otherwise, seems pretty dang high. 

How about when you yourself produce many of the components in that supply chain. I think Samsung is very capable of having a 35% profit margin.
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post #13 of 51
Quote:
Originally Posted by Retrogusto View Post


Exactly. I guess if I copied the iPhone and sold 10 million of them at break-even, there wouldn't be any damages at all, right?

So basically, Samsung would fess up if the price (fine) is right?
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post #14 of 51

deleted


Edited by MacRulez - 1/21/13 at 3:03pm
post #15 of 51
Quote:
Originally Posted by SolipsismX View Post

Wait, what?! Samsung choose a witness who claims Samsung is guilty... but at a lower rte than Apple claims?

Covering all bets plus their ass.
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post #16 of 51
Quote:
Originally Posted by SolipsismX View Post

Wait, what?! Samsung choose a witness who claims Samsung is guilty... but at a lower rte than Apple claims?

That was my first thought.
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post #17 of 51
Quote:
Originally Posted by dasanman69 View Post


How about when you yourself produce many of the components in that supply chain. I think Samsung is very capable of having a 35% profit margin.

 

True, I'm sure supplying your own components does help.  Though carrier subsidies are probably giving Apple a significantly better margin.  You could also factor in whatever Apple makes on app and media purchases, if there was an accurate way to do so

post #18 of 51

Does any other company make nine different versions of financial statements? How can they get away with that?!

post #19 of 51
Quote:
Originally Posted by Neo42 View Post

True, I'm sure supplying your own components does help.  Though carrier subsidies are probably giving Apple a significantly better margin.  You could also factor in whatever Apple makes on app and media purchases, if there was an accurate way to do so

Subsidies have nothing to do with it. Even when a phone goes down in price the full retail price stays the same or doesn't go down much.
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post #20 of 51
Originally Posted by jungmark View Post
Does any other company make nine different versions of financial statements? How can they get away with that?!

 

By… paying off the same people nine times? lol.gif

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post #21 of 51
Quote:
Originally Posted by dasanman69 View Post


Subsidies have nothing to do with it. Even when a phone goes down in price the full retail price stays the same or doesn't go down much.

 

The subsidies matter because between a "$200" iPhone and a $200 anything else, Apple is getting more money for their device than the competitor is.  You can compare retail prices though, and the iPhone costs more 99% of the time.

post #22 of 51

Even if 12% were Samsung's true profit margin (and that's debatable), Apple sees a measurable increase in profit for their other products (Macs, Apple TVs, iOS apps, etc.) as a result of the halo-effect from iPhone/iPad purchases. So I don't think the 12% profit just from smartphone/tablet sales is a sufficient measurement of any damages to Apple if that becomes the ruling.

post #23 of 51
Quote:
Originally Posted by Neo42 View Post

The subsidies matter because between a "$200" iPhone and a $200 anything else, Apple is getting more money for their device than the competitor is.  You can compare retail prices though, and the iPhone costs more 99% of the time.

Or so it seems. Apple is upfront on on its financials than anyone else. We don't know how much it costs Samsung to manufacture a device versus how much they sell it for?
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post #24 of 51
ROFL .. That was my immediate reaction!

"Your honor, my innocent client didn't rob the bank but if he did he only took half of the amount the bank claimed was stolen!"
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post #25 of 51
Quote:
Originally Posted by dasanman69 View Post

Less profit means less damages. It's that simple. The offended party will be awarded whatever profit the offender got not what profit that was missed out on.

What makes you think that? Apple is seeking to recover their lost revenue, not take Samsungs. Why should Apple suffer because Samsung can not get as good of deals with Samsung as Apple can.
post #26 of 51
Quote:
Originally Posted by Neo42 View Post

Aside from "cooked books" and other earnings anomalies..

35% margin is absurdly high for consumer electronics.  Maybe if you're controlling the supply chain and have a market lock (like Apple), you'll pull that type of rake. Otherwise, seems pretty dang high. 

Controlling the market? What about all the analyst reports claiming Samsung is outselling Apple nearly 2:1 in the smartphone market. When you consider Apple buys many of their components from Samsung, this whole thing becomes even more absurd.
post #27 of 51
Quote:
Originally Posted by Takeshima View Post

.......
some accusations
.......


P.S Please let me clarify that I am British and live in the UK.

I would say, you are as british as Lucy Koh is american.

Please don't do this.
post #28 of 51

deleted


Edited by MacRulez - 1/21/13 at 3:03pm
post #29 of 51
Quote:
Originally Posted by SolipsismX View Post

Wait, what?! Samsung choose a witness who claims Samsung is guilty... but at a lower rte than Apple claims?

That was my first thought.

I suspect that Apple would be happy with Samsung's estimate of $500 M - with treble damages for willful infringement.

In all likelihood, the jury is likely to consider this number as the low end and Apple's as the high end.
Quote:
Originally Posted by dasanman69 View Post

Less profit means less damages. It's that simple. The offended party will be awarded whatever profit the offender got not what profit that was missed out on.

No, it's not that simple. Lost profits is only one of the elements that Apple could collect on. There are plenty of other sources of damages:

- Damage to their reputation and brand image
- Punitive damages
- Loss of future profits due to Samsung gaining a foothold.
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post #30 of 51
Quote:
Originally Posted by Wovel View Post

What makes you think that? Apple is seeking to recover their lost revenue, not take Samsungs. Why should Apple suffer because Samsung can not get as good of deals with Samsung as Apple can.

Do you really believe Apple lost revenue?
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post #31 of 51
Quote:
Originally Posted by Takeshima View Post

P.S Please let me clarify that I am British and live in the UK.

Where you were born and where you live mean nothing. All that matters is what you say and nothing I've seen you write is worthwhile of being taken seriously. You come across as bigoted and spastic. If you had a valid point it was completely lost because of that.

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post #32 of 51

Wow, where to start.

 

I'm guessing the IRS would be interested in Samsung's NINE different versions of their financials. I believe there's only one accounting method that they should be using.

 

 

Quote:
Under U.S. law, Apple can demand all of Samsung's profits on offending devices if the company is found to have infringed upon its design patents. In contrast, infringement of technical patents can only result in a demand for actual damages.
 
Wagner also noted that his version of Samsung's profits assumed a period beginning April 2011, as opposed to Musika's which started its profit analysis the middle of 2010, a period twice as long.

 

This is why the poor guy was given such little time to do his calculations (to refute Apple's expert's calculations). Notice that he also used a much shorter period of time for his calculations so, if extended to match, they would be closer (perhaps 1 billion vs 2.5 billion?). I wonder how the jury is going to (or is supposed to) sort this out. Somewhere in there is the truth, but who knows where.

post #33 of 51
Quote:
Originally Posted by TheUnfetteredMind View Post

Wow, where to start.

I'm guessing the IRS would be interested in Samsung's NINE different versions of their financials. I believe there's only one accounting method that they should be using.

Not necessarily. There are lots of reasons for having different versions of the financials. For example, it is quite common to use different books for taxes as for SEC reporting.

Nine is a lot, though.
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post #34 of 51
Quote:
Originally Posted by jragosta View Post


No, it's not that simple. Lost profits is only one of the elements that Apple could collect on. There are plenty of other sources of damages:
- Damage to their reputation and brand image
- Punitive damages
- Loss of future profits due to Samsung gaining a foothold.

Apple covered a portion of that in their own suggested breakdown of damages. What I found silly was more the all or nothing assumption when different claims were clearly stated.

post #35 of 51
Quote:
Originally Posted by TheUnfetteredMind View Post

This is why the poor guy was given such little time to do his calculations (to refute Apple's expert's calculations). Notice that he also used a much shorter period of time for his calculations so, if extended to match, they would be closer (perhaps 1 billion vs 2.5 billion?). I wonder how the jury is going to (or is supposed to) sort this out. Somewhere in there is the truth, but who knows where.

There's another major factor which accounts for a factor of 3 difference.

Apple used a gross margin of 35.5% in their calculation. Samsung used the NET margin of 12%.

Rationally, Apple's calculation is correct. The difference between the two is fixed costs. Samsung's calculation assumes that the fixed costs would grow proportional to sales - which is exactly the opposite of how fixed costs work. Your incremental gain from selling additional units (within limits) is equal to the gross margin on that sale, NOT the net margin used by Samsung.

So if you start with Samsung's figure of $500 M and double the time to cover the full time in question, it reaches $1 B. If you now use the gross margin (or contribution margin) instead of the net margin, the figure triples again - or reaches $3 M.

I wonder which business school Samsung's expert flunked out of.
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post #36 of 51
Quote:
Originally Posted by ignatz View Post

 

 

NINE different versions.  And all of them lies.  Samsung is known for cooking its books to make things look "smooth".

 

If they want to prop up there stock price, they release one set of financials.  If they want to claim no damages, they cook up another.  Pitiful, really.


What credentials do YOU have for me to believe what comes out of your mouth?

 

Because all I hear is BS.

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post #37 of 51

I dont understand why Americans gave Samsung a chance to do such a great business with a stolen product.  Being American company, Google had given boost.

Cant people grasp that they had already seen that in Apple devices and we are buying a substandard copy product?

 

Samsung had great history in cooking up evidences. Comedy is, with this bad name it wants to earn Apple like cult status in America.

You moron Samsung.  Get lost.

 

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post #38 of 51
Quote:
Originally Posted by dasanman69 View Post


Less profit means less damages. It's that simple. The offended party will be awarded whatever profit the offender got not what profit that was missed out on.

So, if you usually earn 100 million on a product.

I violate patents, copy your product, sell it with a price 2 times lower than you (because I saved on R&D, and because I am satisfied with lower margin). I earn 25 million. But since my product is so cheap compared to yours, consumers chose my product over yours. You earn 25 million.

 

You lost 75 million, because I lured customers to give 25 millions to me instead.

 

 

Now as per your logic, you agree that I pay you only 25 millions, and other 50 million (damages) you lost - you just fine with it.

I love you dude. What is the next product of yours would you recommend to me to copy?

post #39 of 51
Quote:
Originally Posted by Doorman. View Post

So, if you usually earn 100 million on a product.
I violate patents, copy your product, sell it with a price 2 times lower than you (because I saved on R&D, and because I am satisfied with lower margin). I earn 25 million. But since my product is so cheap compared to yours, consumers chose my product over yours. You earn 25 million.

You lost 75 million, because I lured customers to give 25 millions to me instead.


Now as per your logic, you agree that I pay you only 25 millions, and other 50 million (damages) you lost - you just fine with it.
I love you dude. What is the next product of yours would you recommend to me to copy?

In your scenario, you didn't come out ahead, so there's no advantage to you.

That ignores one of the biggest problems of Samsung's theft. Let's say that the court takes away 100% of their profits on infringing devices for the past 2 years. They would still be far ahead of the game because:
1. Having copies of Apple's phone helps them to sell other phones.
2. They have gained massive amounts of market share due to their theft and will probably retain a large part of that even after they stop making infringing products.
3. They gained a great deal of R&D without spending a penny. That R&D is useful on other products.
4. Even if the court takes away their profits, selling these phones absorbs some overhead, so it makes other products more profitable. (This is why Apple's calculation of gross profits is more valid than Samsung's calculation of net profits).
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post #40 of 51
Quote:
Originally Posted by dasanman69 View Post


Or so it seems. Apple is upfront on on its financials than anyone else. We don't know how much it costs Samsung to manufacture a device versus how much they sell it for?

 

Admittedly, I am guessing that for example it costs Apple less to make the iPhone 4S (retail: $649) than it does Samsung to make the Galaxy SIII (retail: $599) just because of the beefier (quad core SoC) hardware in the SIII.  Apple consistently manages to get as good or better performance from cheaper/older tech. 

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