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Samsung's New Galaxy to Defy Apple

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Samsung Electronics Co. unveiled its newest version of Galaxy Note smartphone at the World IT Show 2012 in Seoul, South Korea. This new version is equipped with a stylus, or pen. The primary reason for the launch is to tackle the competitive pressure from Apple Inc. (AAPL - Free Report) .

Samsung’s new smartphone is directly aimed at the iPhone maker as it lost a key patent infringement case against the latter recently. Apple gained a major advantage in a closely-watched patent infringement battle against Samsung, as the U.S. District Court in San Jose, California, ruled in favor of the iPhone maker. The nine-member jury ruled that Samsung had infringed upon six of Apple’s patents and also rejected all counter claims by Samsung. Samsung was ordered to pay $1.05 billion to Apple.

The verdict was a big blow to Samsung as well as to Google Inc. , as the mobile devices in question run on Google’s Android operating system. Apple is aiming to ban most of the Galaxy models.

To counter the negative effect of the verdict (that was more or less expected) and to maintain its market share, Samsung launched the latest version of its successful Galaxy Note. The new model has a bigger screen coupled with a pen or stylus. This model can also recognize handwriting from the digital pen. 

Interestingly, Apple is Samsung’s biggest customer. Samsung supplies memory chips and display units to Apple and garners 9.0% of revenue from Apple. Now we wait for better visibility regarding how the verdict affects this relationship. The main reason that Apple continues to source from Samsung is its perennial supply shortage. However, Apple has reduced its dependence over time and this is a trend we should expect going forward.

According to the U.S. research firm IDC, Samsung  currently has the biggest share of the smartphone market. In the first quarter of 2012, Samsung shipped 42.2 million units, whereas Apple shipped 35.1 million units and Nokia Corp. (NOK - Free Report) shipped only 11.9 units worldwide. Apple could take the lead again with the launch of its iPhone 5, especially if Samsung’s new products can be prevented from entering the market. We take a wait-and-see approach.

Currently, Apple, Google and Nokia all carry a Zacks #3 Rank, implying a short-term Hold rating.

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