) relentless effort to curb Samsung's growth in the tablet market
gathered steam when The U.S. Court of Appeals for the Federal
Circuit ruled in favor of the iPad maker in a case related to
patent infringements. This recent ruling may lead to a potential
sales ban on the Galaxy Tab in the U.S., reported Bloomberg.
In December last year, Apple had appealed to the District Court
in San Jose for banning Samsung's Galaxy Tab in the U.S.
However, the plea was rejected that time. According to the ruling,
the court granted Samsung the right to sell its products in the
country until the case goes to trial.
Apple and Samsung have been fighting several legal battles
spreading across 10 countries. Their legal tussle hinges on certain
design-related patent issues, where the former claims that
Samsung's Galaxy Tabs look and feel just like an iPad.
In light of the recent development, Apple can pursue the sales
ban on Samsung's tablets until the case goes on trial. However,
both the companies are expected to look for an out-of-court
settlement later this month. Alternatively, Samsung has the option
to modify its design for the tablet to dodge the ban.
By banning Samsung tablets in different countries, Apple's main
objective is to stall the growth of
) Android OS. Samsung is leveraging on Android to become one of its
most significant competitors and the company is already the largest
vendor of Android-based products. The fact that Android is expected
to continue its very strong growth all over the world is a major
headache for Apple.
We believe that Apple's legal hassles will continue as
competition heats up in the smartphone and tablet space. This will
increase legal expenses and will hurt Apple's operating profit
Despite the threat from Android and lower-than-expected sales in
the tablet market, Apple has maintained its leading position in
this arena with 68% market share in the first quarter 2012, which
rose significantly from 55% in the fourth quarter of 2011,
according to IDC. Samsung came in second while
) was third. Interestingly, there was a steep drop in Android-based
tablets in the first quarter.
Apple's iPad constitutes a significant portion of revenue in the
recently concluded quarter. Total iPad units sold in the quarter
were 11.80 million versus 4.69 million sold in the comparable
prior-year quarter. Recognized revenues from iPad and accessories
during the quarter jumped 132.0% year over year to $6.6 million,
driven by strong demand for the new iPad.
We believe that Apple remains the biggest growth story based on
its product pipeline, popular apps, iCloud and iPhone 4S, and the
new iPad and Apple TV, and loyal customer base. With a solid
balance sheet and robust revenues, we expect Apple to outperform
its peers in the long run. Moreover, we also expect Apple to
succeed in developing countries due to the growing affluence of the
middle class in key markets.
We maintain our Outperform recommendation over the long term
(6-12 months). Currently, Apple has a Zacks #2 Rank, which implies
a Buy rating in the near term.
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