First Click: Apple’s done far more damage to Samsung via competition than litigation

July 21st, 2015

It took a while, but Apple’s finally making Samsung pay for its transgressions. No, not via litigation in Apple’s endless proxy war with Google, but through good ol’ fashioned competition.

In the US alone, courts have awarded Apple about $700 million in damages. A 2012 decision said that Apple was due $930 million, later reduced to $548 million on appeal in May 2015. A second trial in 2014 agreed that Apple was owed another $120 million. Those numbers don’t account for lawyer fees which Apple pegged at more than $60 million back in 2013 for its US lawyers, in an intellectual property battle that has raged across the globe since 2011. But for the sake of simplicity, let’s assume that Samsung has been punished to the tune of $700 million.

With that in mind, take a look at this chart:

See that big dip in Q3 2014 operating profit at Samsung’s mobile division? That’s the quarter when Apple stopped talking about the length of your thumb and launched its first big phones: the 4.7-inch iPhone 6 and 5.5-inch 6 Plus — devices that had been heavily rumored prior to their September 9th announcement.

In the two quarters that followed, Samsung’s mobile group has seen 7.2 trillion won wiped off its profits from the same period a year prior. That’s about $6.2 billion in six months, or about nine times more than the $700 million Samsung was penalized through Apple litigation over the last four years. The benefit to Apple is even greater if you look at Cupertino’s record profits over those same two quarters.

Of course, there are other forces at work here besides Apple. Samsung’s mobile operating profit numbers include sales of tablets and feature phones, in addition to high-end smartphones. Chinese and Indian brands have been putting the squeeze on Samsung at the low- and mid-range of its mobile lineup for several quarters now as Apple pummels it from the top with phablet devices popularized by Samsung. But profits tend to come from fat margins on premium smartphones and, so far, the launch of the metal and glass Galaxy S6 and S6 Edge has yet to turn the tide: Samsung Electronics recently warned of a 4 percent drop in operating profits for Q2 2015 compared to Q2 2014.

Litigation has proven to be a fool's errand for Apple and only helped raise the profile of Samsung in the process. Where before Samsung had been just yet another maker of plastic Android rectangles, Apple told the world that Samsung was its equivalent. A copy. And there’s no such thing as bad publicity. With hindsight it’s clear that the best way to compete is by building the most competitive product.

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Coincidence of the day