Samsung Galaxy Note tablet PC

Samsung legal battles may dent sales

Legal disputes between Samsung and Apple are expected to crimp growth of the newest Samsung tablets and smartphones.

The two technology companies have been battling over smartphone and tablet patents since April, with Apple successfully blocking Samsung from selling its latest tablets in Germany and some smartphone models in the Netherlands.

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

Samsung's Galaxy gadgets, powered by Google's Android operating system, are seen as the biggest challengers to Apple's iPhone and the legal disputes could dent Samsung's attempt to close the gap with the iPad maker in the global tablet market.

"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.

"But taking passive steps for fear of losing its biggest customer will slow down strong growth momentum at its telecoms business, which Samsung doesn't want to see as the business is set to become the biggest earnings generator this year and make up for weakening chip profits. It'll be a costly battle for Samsung."

Samsung supplied Apple with about $5.7 billion in components last year, some four per cent of its total sales.

Apple's portion grew to 5.8 per cent 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 .

Apple and Samsung are scrapping for top spot in the smartphone market, having overtaken market leader for the past decade Nokia in the second quarter.

Samsung still trails badly in tablet sales, where Apple racked up 14 million iPad sales in the first half, versus analysts' sales estimates of about 7.5 million Samsung tablet products for all of 2011.

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

Technology experts say Apple's intellectual property battle with Samsung Electronics is part of its broader strategy of using the courts to help cement the unassailable lead its iPad has in the tablet market.

Samsung is betting on its new tablets to close the gap with Apple and reach its target of increasing tablet sales by more than five folds this year.

Analysts said what may become a longer-term challenge for Samsung, is losing chip orders from Apple.

"For Samsung, the biggest concern is reduced order 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 furiously, powered by its flagship Galaxy lineups. Some analysts expect Samsung to overtake Apple as the world's No.1 smartphone vendor and report record profits in July-September, as it has much broader lineups than the high-end focused Apple.

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

Samsung and Apple are suing each other in 9 countries over 20 cases. Apple first fired 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.

Some analysts said Samsung's aggressive stance could help it gain some support from consumers.

"These legal battles are raising perception among consumers that Samsung is the only one capable of competing against Apple," said Choi Do-youn, an analyst at LIG Investment & Securities.

Despite the global court cases, both companies could end up settling the cases, HSBC 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," said HSBC analyst Daniel Kim.

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