Apple on the Backfoot

Reportedly, Apple Inc. (AAPL - Analyst Report) was dealt a major blow as its request to ban Samsung’s smartphones in the U.S. was turned down by U.S. District Judge Lucy H. Koh.

The judge ruled that banning Samsung smartphones permanently from the U.S. market, though it infringed some of Apple’s patents, would not be best for public interest. The judge also suggested that Samsung smartphones had a number of other features that did not violate any of Apple’s patents.

Additionally, Judge Lucy H. Koh’s found that Apple failed to provide sufficient evidence regarding the patented features, which are claimed to be the primary drivers of iPhone’s demand.

This is a major defeat for Apple against Samsung in the U.S. after the U.S. Court of Appeals for the Federal Circuit overturned a lower court’s ban on sales of Samsung’s Galaxy Nexus smartphones in the country in October.

However, Apple can draw some solace from the fact that Judge Lucy H. Koh also turned down Samsung’s allegations of juror misconduct. Moreover, in August this year, the iPhone maker had gained a major advantage over its Korean counterpart when the court ordered it to pay $1.05 billion for patent infringement.

We believe that the impending lawsuits will act as a headwind for Apple. Moreover, the fact remains that Samsung has outsold Apple in the smartphones category. 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, according to IDC. 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%.

Apple continues to face increasing competition from Google’s (GOOG - Analyst Report) Android-based products. Although Apple is trying to block the sales of Android-based products, its efforts have not been entirely successful. Additionally, increasing product-related costs and supply-chain constraints are the other near-term headwinds

Nonetheless, Apple’s solid product line, Apps, iCloud, loyal customer base and a strong balance sheet are the long-term drivers. Strong sales of iPhone 5 and iPad Mini will drive near-term results. The company’s expansion in China and other developing nations should act as a positive catalyst going forward. 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 (Hold).