Apple-Samsung Patent War Intensifies

The patent fight between Apple Inc. (AAPL - Analyst Report) and Samsung intensified with the former seeking to add six more products of the South Korean company to its patent infringement lawsuit. The products in question include Samsung Galaxy S III, which has the latest “Jelly Bean” Android 4.1 operating system from Google (GOOG - Analyst Report). The other products are Galaxy Note II, Galaxy Tab 8.9 Wi-Fi, Galaxy Tab 2 10.1, Rugby Pro and Galaxy S III mini.

Samsung’s Galaxy S III and the Galaxy Note II have been in demand this holiday season. Samsung continued to expand its market share in the overall mobile phone as well as smartphone markets, based on its diversified product portfolio that caters to every income group.

According to IDC, Samsung widened its lead in the third quarter of 2012 with a total market share of 31.3%, which expanded from 22.7% in the year-ago period. During the same period, Apple’s market share climbed from 13.8% to 15.0%. Moreover, in terms of units shipped, Samsung recorded a year-over-year increase of 100.4% compared to Apple’s 57.3%.

Thus, Apple is eager to reclaim its position as the top smartphone vendor and is investing its resources to restrict Samsung’s progress. Apple has dragged Samsung to court by filing a number of design-related patent lawsuits. On the other hand, Samsung also alleged that Apple infringed upon certain wireless and feature-related patents. Samsung filed a patent infringement case against Apple’s iPhone, iPad mini and iPod Touch 5.

Recently, a U.S. federal judge had ordered the iPhone maker to produce the details of its settlement terms with HTC. This order will help Samsung determine if Apple’s claims for “irreparable harm” could be thwarted. This is apparently what Samsung needs to prevent the injunction that could ban its devices in the country.

In August this year, the iPhone maker had gained a major advantage over its Korean counterpart by winning a $1.05 billion patent-infringement verdict. Now, in the upcoming December hearing, U.S. District Judge Lucy H. Koh will preside over Apple’s claims to permanently ban Samsung smartphones and Galaxy 10.1 tablets from the U.S. market. The judge will also consider Samsung’s allegations of juror misconduct.

We believe that the impending lawsuits will act as a headwind for the company. Moreover, increasing product-related costs and supply chain constraints may hurt profitability going forward.

However, Apple’s niche products, Apps, iCloud and loyal customer base are the long-term positives. Apple’s international expansions in developing nations should be a positive catalyst. Moreover, the recent shareholder-friendly moves, such as dividend payment and share buyback, are expected to drive the stock going forward.

Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term.