Android litigation seen adding 'significant value' for Apple shareholders

Posted:
in AAPL Investors edited January 2014


Patent infringement litigation between Apple and Android-based handset makers is viewed as a positive for AAPL shareholders, who could benefit from the company's iPhone patent portfolio with licensing deals or a potential ban on Android devices.



Analyst Chris Whitmore with Deutsche Bank issued a note to investors on Monday offering his take on continued lawsuits between Apple and Android handset makers like Samsung, HTC and Motorola. He believes that the ultimate outcome of the litigation will add "significant value" for AAPL shareholders.



Whitmore sees two potential outcomes of the ongoing litigation, both of which are favorable to Apple. Either iPhone maker obtains a licensing fee for the sale of each Android device, or Apple could secure bans on some devices and take 25 percent market share from Android.



"Under the first scenario, we believe a $10 per (software) licensing deal would accrue roughly $35 per share in value to Apple stock price," he said. "Under the second scenario, we estimate the incremental value to Apple shareholders would be 7-8 (times) higher."



Based on Apple's current stock price, Whitmore believes investors will benefit from a "free call option on a potentially very lucrative income from IP litigation." He considers it a "high probability" that Apple will monetize that value with a licensing deal which is not currently priced into the company's market valuation.



"The upside potential associated with an outright win is so large we don't expect Apple to settle anytime soon -- particularly not for the $5-10 per unit number that has been speculated in the press," Whitmore said. He believes the litigation will continue well into 2013 in a "long, drawn out process."











While Apple has opted to continue its legal battles against Android, Microsoft has taken a different approach in reaching licensing deals with Android-based handset makers. It's been estimated that Microsoft receives $5 for the sale of every Android smartphone sold by HTC, while Microsoft also receives royalties from Samsung's Android smartphones.



But a potential licensing agreement obtained by Apple could be much more lucrative. One analysis detailed last month claimed that Apple could collect up to $10 in royalties for every Android device sold.



Similarly, Whitmore believes that Apple's more than 200 patents and patents pending related to multi-touch technology are "largely undervalued" on Wall Street. He also sees Apple obtaining $10 per Android handset if it wins in litigation, adding $35 incremental to the company's share price.



But licensing deals would leave a lot of potential money on the table. If Apple were to win outright and courts were to ban Android handsets or severely limit the features of Android, he sees "enormous" financial benefits for Apple, potentially adding $261 to the company's stock price.

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Comments

  • Reply 1 of 44
    lkrupplkrupp Posts: 6,530member
    Okay, so now we have one analyst saying the patent thing could hurt shareholders and another saying it could help shareholders.



    Apparently, as it turns out, all analysts are biased, all journalists are biased, all facts can be spun any way you want to to produce the results you desire. I had suspected this for years but was too gullible to accept it. Silly me.
  • Reply 2 of 44
    umumumumumum Posts: 76member
    Quote:
    Originally Posted by AppleInsider View Post


    <blah blah blah ...>

    Whitmore said. He believes the litigation will continue well into 2013 in a "long, drawn out process."

    <...blah blah blah>



    another two years of patent nonsense, nooooooooooooooooooooooooooooooooooooooooooooooooo ooooooooooooooooooooooooooo
  • Reply 3 of 44
    blastdoorblastdoor Posts: 1,888member
    I tried for a while to follow all this patent stuff using that blog by Florian Muller (sp?), who generally seems better informed and more sensible than most of the other people who comment on patent issues. But it seems to me that even he really doesn't have any idea how this is going to turn out.



    I've come to the conclusion that if anybody truly knows with any confidence what's going to happen with these patent suits, they are not talking in public about it. Corollary: everyone who talks in public about this stuff has no idea what they're talking about.



    The only little thought I have that makes me think Apple has more to gain than to lose is that they wouldn't be pursuing such an aggressive strategy otherwise. When Jobs was in charge, we could have imagined that this was all a personal thing without regard to probabilities of winning. But I suspect Cook is a guy who is going to do things by the numbers. If Apple starts looking for out of court settlements, we can infer that Cook has decided the chances don't look good for big wins. But if Apple sticks with their aggressive strategy, I'll conclude that Cook (+ apple lawyers) really think they can win, and they are probably the people in the best position to make that perdition (doesn't mean they'll be right, of course).
  • Reply 4 of 44
    Quote:
    Originally Posted by lkrupp View Post


    Okay, so now we have one analyst saying the patent thing could hurt shareholders and another saying it could help shareholders.



    Apparently, as it turns out, all analysts are biased, all journalists are biased, all facts can be spun any way you want to to produce the results you desire. I had suspected this for years but was too gullible to accept it. Silly me.



    Like any other source, you need to look at the whole picture. Not all sources (and frankly precious few anymore) will report the entire picture. You don't gain pages hits by being truthful, unbiased and objective - the unfortunate reality of blogging, internet ubquity, and lowering the bar on "journalism". Moreover if this analyst has his clients long on APPL, then he is going to (within the actual capacity of the stock and what if any few professional ethical standards are required) reinforce any net advantages to corporate action, and downplay any negatives. In reality (which in and of itself doesn't pull in many page hits), the end result of the litigation scene will be played out over the next 5-7 years, which is longer than most people ever care to be interested in something.



    The litigation approach, is simply now a part of corporate strategy in negotiating licensing and IP ownership/usage. Is it right, on the face of it, perhaps not. But the days of captains of industry sitting down and meeting face to face to negotiate resource sharing is long past if they actually ever existed at all.



    Meantimes it keeps page hits coming in on sites like this and gives those of us with interest something to argue about *grin*
  • Reply 5 of 44
    bloggerblogbloggerblog Posts: 1,807member
    Quote:
    Originally Posted by umumum View Post


    another two years of patent nonsense, nooooooooooooooooooooooooooooooooooooooooooooooooo ooooooooooooooooooooooooooo



    Two years?! Think more like 10 years or more.
  • Reply 6 of 44
    wigginwiggin Posts: 2,265member
    Quote:
    Originally Posted by lkrupp View Post


    Okay, so now we have one analyst saying the patent thing could hurt shareholders and another saying it could help shareholders.



    Apparently, as it turns out, all analysts are biased, all journalists are biased, all facts can be spun any way you want to to produce the results you desire. I had suspected this for years but was too gullible to accept it. Silly me.



    I don't recall where this quote comes from, but...



    "Numbers will confess to anything if you torture them long enough."
  • Reply 7 of 44
    blitz1blitz1 Posts: 410member
    There is a third outcome: the smartphone makers circumvent the licences
  • Reply 8 of 44
    tallest skiltallest skil Posts: 43,399member
    Quote:
    Originally Posted by Blitz1 View Post


    There is a third outcome: the smartphone makers circumvent the licences



    And put out reduced-functionality phones?



    Because the only other option is for them to create their own unique implementation of the stuff being infringed, and if it was possible for them to do that, they would have already DONE it to avoid this.
  • Reply 9 of 44
    gatorguygatorguy Posts: 19,696member
    Quote:
    Originally Posted by Tallest Skil View Post


    And put out reduced-functionality phones?



    Because the only other option is for them to create their own unique implementation of the stuff being infringed, and if it was possible for them to do that, they would have already DONE it to avoid this.



    There really hasn't been any dire need so far has there? Not a single infringement case between Apple and any Android vendor has been settled yet. It's not even certain how many patents being claimed will even hold up to re-examination, much less infringed. I know there's lots of claims and accusations being bandied about on both sides, but nothing settled on any of the legal fronts as for whether anyone has actually "stolen" anyone's IP.
  • Reply 10 of 44
    aaarrrggghaaarrrgggh Posts: 1,566member
    This type of discussion really scares me; patents shouldn't be worth as much as half of Apple's market cap. We are breeding lawyers rather than inventors, and that is a dangerous trend.
  • Reply 11 of 44
    Apparently anyone can be an investment analysts.
  • Reply 12 of 44
    Quote:
    Originally Posted by Blitz1 View Post


    There is a third outcome: the smartphone makers circumvent the licences



    +1 for this. All this litigation on all parties only helps the lawyers.
  • Reply 13 of 44
    Quote:
    Originally Posted by Gatorguy View Post


    There really hasn't been any dire need so far has there? Not a single infringement case between Apple and any Android vendor has been settled yet. It's not even certain how many patents being claimed will even hold up to re-examination, much less infringed. I know there's lots of claims and accusations being bandied about on both sides, but nothing settled on any of the legal fronts as for whether anyone has actually "stolen" anyone's IP.



    And by the time the cases come to light and get settled, the technology being sued over is years old and more than likely has been life-cycled to something better or can easily be circumvented via software updates. If I have an HTC phone that has infringing IP, and HTC issues a patch to circumvent the settlement, who says I have to update?
  • Reply 14 of 44
    Quote:
    Originally Posted by Wiggin View Post


    I don't recall where this quote comes from, but...



    "Numbers will confess to anything if you torture them long enough."



    Found it here. Your version isn't precise but more to the point. I'm going to use it from now on. Reminds me of what my stats prof told me "There are three kinds of liars: liars, damn liars and statisticians."
  • Reply 15 of 44
    blastdoorblastdoor Posts: 1,888member
    Quote:
    Originally Posted by aaarrrgggh View Post


    This type of discussion really scares me; patents shouldn't be worth as much as half of Apple's market cap. We are breeding lawyers rather than inventors, and that is a dangerous trend.



    I don't think that's obvious. I think that as a society we want there to be an incentive to come up with new and useful ideas, and one of the best incentives around is the profit motive. But if an idea can easily be copied without any penalty, then it's hard to make a profit off of it. And thus we have patents.



    There are a variety of debates one could have about patents. Do we want new and useful ideas? Is the profit motive a good way to generate them? Is there a way to make enough money off of an idea without patent protection to create the incentive to come up with new and useful ideas?



    If the answers to those questions are "yes", "yes", and "no", then we must have patents. At that point, the debate becomes exactly how to implement them. Exactly how much profit must people be allowed to earn in order to give them the incentive to come up with new and useful ideas? Are there situations where people are receiving more profit than is needed to achieve society's goals? Are the administrative costs of the system higher than they have to be?



    It seems to me that we need patents, but that perhaps we need to reform the system to make sure that it really does encourage, rather than discourage, innovation AND to make sure that it doesn't allow firms to extract too much profit out of what is by necessity a government created asset.
  • Reply 16 of 44
    Quote:
    Originally Posted by bloggerblog View Post


    Two years?! Think more like 10 years or more.



    Yes you're right, this will go on and on as Android is gradually degraded, stripped of its stolen bits.



    I never cease to be amazed at the naïve attitude many people have towards IP, especially Fandroids, who seem to think that “innovation” means blatantly copying other peoples’ patents and copyrights and then screaming that its anti-competitive and/or anti-innovation and/or against consumers interests for the rightful owners of the IP to complain or attempt to enforce their legal rights!.



    Are these people really so ignorant as not to realize that advanced economies, especially the US, Canada and Western Europe are extremely dependent on defending and exploiting the trillions of dollars they have invested in IP for centuries? Are they not aware that many tens of millions of jobs in these advanced nations are heavily dependent on defending the intellectual rights of their employers and their creative industries such as film, TV program makers, music, authors, publishers, designers etc. etc.? For example more than 50% of Apple's 64,000 employes are in the US.



    Many people complain about the Chinese pirates making cheap copies all types of Western designed goods, but by far the biggest culprit appears to be Google who seem to think they have some sort of God given right to copy anybody’s copyright or patent and because they “give’ it away free in some sort of self-acclaimed public service, they should not have to abide by the laws of copyright or patents. In fact Google’s motives are from altruistic. They exploit other peoples IP to generate advertising revenue and profits for themselves, trying to avoid paying the rightful owners their rightful dues.



    In the past Google have been found guilty of exploited IP of relatively small fish: publishers, authors, TV program makers etc. But with Android, Google and their gang of copycat OEMs, have taken on three of the richest and most powerful US companies: Microsoft, Oracle and Apple. Thousands of US jobs are at stake and these companies will fight all the way to protect their rights.



    Many of the OEMs have already reached licensing agreements with Microsoft agreeing to pay royalties reported to be anywhere between $10 and $25 dollars per phone.



    In the case by Oracle, Google were desperate to suppress an incriminating email which appears to prove that Google knew full well that they were stealing IP, but decided go ahead anyway. If the jury find this to be the case Oracle may obtain triple damages, which will amount to many billions of dollars compensation plus royalties going forward, probably another $10 or more per phone.



    However, with Apple Google have taken on the richest company of all, who are not at all interested in licensing, but only in stopping Android and their copycat muggers from what they believe to be theft of their look and feel. This will be a long, long series of battles in a global war which is still at its early stages, but which Apple are determined to take to the bitter end.



    Bit by bit Android will suffer more and more degradation as more and more of the look and feel which Apple claim that they have stolen will be banned. The win against HTC in the US is an example of this look and feel type patent, which will be enforced in due course against all the Android copycats. HTC say they can get round it, but it will degrade Android's usability and look and feel.



    What is interesting in these opening skirmishes is that Samsung’s case appears so weak they have resorted to abusing their FRAND patents as a form of desperate defense. This tactic is likely to backfire badly on them as they and their partners are likely to fall foul of the EU Commission anti-trust laws.



    What appears especially significant is that Apple in recent weeks has obtained US approval for numerous new patents involving touch screen and gestures, which are at the heart of the iOS look and feel. Doubtless Apple will use these in new rounds of patent cases against Google and/or their gang of copycats, further degrading Android’s attraction bit by painful bit.



    PS So I agree with the Anlayst that these patent wars will result in considerable additional shareholder value for Apple
  • Reply 17 of 44
    IPhone Built for China Telecom Gains Regulator Approval





    http://www.pcworld.com/article/24750..._approval.html





    China Telecom and China Unicom together have about 320 million mobile subscribers
  • Reply 18 of 44
    Quote:
    Originally Posted by FriedLobster View Post


    IPhone Built for China Telecom Gains Regulator Approval





    http://www.pcworld.com/article/24750..._approval.html





    China Telecom and China Unicom together have about 320 million mobile subscribers



    This could be great news for Apple. It seem that apart from the technical aspects of building a special CDMA iPhone for the China market, the main sticking point is to get the Chinese carriers to agree to Apple's requirement not to put they bloatware on top of the iPHone UI.



    Many carriers around the world have been resisting this requirement, but most sooner or later have to cave in, because iPhone users are by far the most profitable for carriers. If they don't offer iPhones to their subscribers they lose market share, especially haemorrhaging their most valuable subscribers.



    Verizon, tried to stand out against Apple, but eventually had to agree as they lost more and more of their most valuable subscribers to AT&T.



    If Apple can offer the iPhone through the two smaller China carriers, China Telecom in addition to China Unicom, this will put more pressure on the biggest carrier, Chine Mobile, to also start selling the iPhone. As it is, it seems that China Mobile already have 10 million iPhones registered on their network!
  • Reply 19 of 44
    sockrolidsockrolid Posts: 2,788member
    Quote:
    Originally Posted by AppleInsider View Post


    [...] He believes the litigation will continue well into 2013 in a "long, drawn out process." [...]



    The patent war has barely begun. Apple is attacking the handset manufacturers first. Why? Because they're the ones who are making the money from Android. They have the most to lose right now. And they're also blatantly infringing on Apple's "trade dress" patents. They're the low-hanging fruit, and those trials can be processed quickly.



    Eventually, after chopping away at the Samsungs, HTCs, and Motorolas, thus establishing legal precedent, Apple could sue Google directly. Oracle might not like it, since their Java infringement suit against Google seems certain to be a good source of revenue for Larry and company. The judge has publicly stated that the any decent trial lawyer could win the case with two existing documents: 1. the email proving that Google's management plotted to copy Java without paying the licensing fee, and 2. the Magna Carta.



    The "triple damages" likely to be awarded to Oracle sounds like a lot. That will be worth billions. But if Apple wins an in junction, they could, as the story suggests, take vast market share from Android and add 65% to their market cap. Hundreds of billions. So in the short term after the Java suit (2-3 years) Oracle reaps decent profits. And in the long term after suing Google directly (3+ years) Apple reaps massive profits. Sounds like a good plan.



    And that's just in the handset space. Imagine what Apple could do to Android in the pad computing space. So far, the only successful Android pad is the low-end Kindle Fire. It's already being sold at a $10 loss. Doubling that to $20 per unit by extracting a $10 Java licensing fee would be a disaster for Amazon. Add an Apple fee of $10 and Amazon would be selling each Kindle Fire at a $30 loss (all things being equal.) That may be too much to recoup through retail sales.
  • Reply 20 of 44
    Quote:
    Originally Posted by SockRolid View Post


    The patent war has barely begun. Apple is attacking the handset manufacturers first. Why? Because they're the ones who are making the money from Android. They have the most to lose right now. And they're also blatantly infringing on Apple's "trade dress" patents. They're the low-hanging fruit, and those trials can be processed quickly.



    Eventually, after chopping away at the Samsungs, HTCs, and Motorolas, thus establishing legal precedent, Apple could sue Google directly. Oracle might not like it, since their Java infringement suit against Google seems certain to be a good source of revenue for Larry and company. The judge has publicly stated that the any decent trial lawyer could win the case with two existing documents: 1. the email proving that Google's management plotted to copy Java without paying the licensing fee, and 2. the Magna Carta.



    The "triple damages" likely to be awarded to Oracle sounds like a lot. That will be worth billions. But if Apple wins an in junction, they could, as the story suggests, take vast market share from Android and add 65% to their market cap. Hundreds of billions. So in the short term after the Java suit (2-3 years) Oracle reaps decent profits. And in the long term after suing Google directly (3+ years) Apple reaps massive profits. Sounds like a good plan.



    And that's just in the handset space. Imagine what Apple could do to Android in the pad computing space. So far, the only successful Android pad is the low-end Kindle Fire. It's already being sold at a $10 loss. Doubling that to $20 per unit by extracting a $10 Java licensing fee would be a disaster for Amazon. Add an Apple fee of $10 and Amazon would be selling each Kindle Fire at a $30 loss (all things being equal.) That may be too much to recoup through retail sales.



    And then a unicorn takes you away towards the sunset in the direction of Paradise.
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