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So, what’s been going on between Samsung and Apple?

Back in late August Apple was awarded a $1.08 billion verdict in San Jose, CA court.  It looked bad for Samsung.  Since then, the Great Thermonuclear Patent War of the early 21st century between Samsung and Apple has gotten more nuanced with wins and loses for both parties.

Apple has lost in Japan, the Netherlands and the U.K. (including the appeal), with the U.K. loss being particularly irritating for Apple.  Furthermore, the fight appears to have moved beyond the court and into supplier relationships, supply chain management, unit sales and marketing.

It’s common knowledge in the industry that not only is Samsung a major competitor to Apple in finished goods, but a major supplier of components such as logic chips, flash memory and screens.  Recent tear downs of Apple product show a noticeable reduction of Samsung made components, particularly flash memory.  However, Apple still buys a lot of screens and logic chips from Samsung.  It appears there are very few companies that can supply as many logic chips to Apple for the quantity and quality requirements that Apple needs.  Samsung, appears to know this and has apparently (and arbitrarily) raised logic chip prices by 20%.  According to sources, Apple has no choice but to eat this.  Some sources claim this is just Samsung’s way of “creatively” recouping their settlement losses to Apple.  At the same time it is currently not written in stone that the San Jose court verdict will even stand, as Samsung’s lawyers move to declare a mistrial.

Turmoil with major suppliers has made timely availability of Apple’s brand new iPhone 5 spotty.  There are reliable rumors that Apple forked over $2 billion to keep nearly bankrupt Sharp afloat as a somewhat reliable supplier for iPhone 5 screens.  Without reliable supplies of the iPhone 5, Samsung’s Galaxy S3 has taken the lead as the most popular smartphone in the world by unit sales.  Another hit?  Apple has been declared a copier by losing a Texas federal court decision that they infringed on virtual-private-network technology patents of VirnetX, in the tone of $368 million.

Supplier issues, patent losses, competitive pressures and no dynamite announcements of blockbuster products for the holiday season has weighed heavily and since August, Apple stock has gone from just over $700/share to $540, a loss of over 23%.  It’s been barely three months since the big San Jose verdict, however has the tide already begun to turned against Apple?

  • enomoseki

    Surprise, surprise.

    Crapple’s biggest win in court action is their home turf California. They lost every single big cases outside of their home turf Amuurica, the home of patent trolling #1.

  • SalarymaninSeoul

    #1, hear hear. Apple is falling apart. No Jobs, no hope. Its really only a matter of time before Apple becomes irrelevant. Good riddance to bad garbage.

  • tinyflowers

    But but but the iPad mini is Amazing! Revolutionary! Magical! The Pinnacle of Industrial Design! This Changes Everything! It. Just. Works!

  • Creo69

    “So, what’s been going on between Samsung and Apple?”

    Love :)

  • Creo69

    “#1, hear hear. Apple is falling apart. No Jobs, no hope. Its really only a matter of time before Apple becomes irrelevant. Good riddance to bad garbage.”

    Probably some truth to this. With competitors putting out products that are of almost equal in design quality and performance Apple isn’t going to get away with gouging people for much longer. They will always have a following but their mass following is going to come to an end sooner than later. They can just serve their niche and sit on the massive pile of cash they have.

  • http://www.xanga.com/wangkon936 WangKon936

    Creo69,

    Tough shit for people who bought the stock at $703 bucks.

  • SalarymaninSeoul

    Creo,

    notice the diminishing returns from each new Apple “unveiling.” The first few i-Phone unveilings were huge, but the last few have had very little impact and the iPhone 5, which was supposed to be revolutionary has really not been revolutionary at all. There is really only so far “design” will take you.

  • jkitchstk

    # 6,
    “Tough shit”

    For Koreans who bought the Samsung Galaxy S3 for 990.000 Won since it went on sale for 150.000 and can be go for what 300.000 Won now?

    Apple lost one patent case in Japan while there are numerous others to be decided, nice going Korean media echo.

  • tinyflowers

    For Koreans who bought the Samsung Galaxy S3 for 990.000 Won since it went on sale for 150.000 and can be go for what 300.000 Won now?

    Yeah that’s exactly like losing $150 billion in market capitalization in a little under two months.

  • jkitchstk

    “At the same time it is currently not written in stone that the San Jose court verdict will even stand, as Samsung’s lawyers move to declare a mistrial.”

    Like it ain’t written that any court verdict will stand other than the one in Seoul, S. Korea. However, the only argument I’ve found to overturn the one in San Jose is because the jury consisted of stupid Americans and “Uhhh, Judge Koh, would you please overturn the verdict on the grounds that we let the jury forman serve the public.”

  • SalarymaninSeoul

    Apple fanboys are annoying little rats.

  • http://coryinkorea.wordpress.com/ 코리아

    “However, the only argument I’ve found to overturn the one in San Jose is because the jury consisted of stupid Americans and “Uhhh, Judge Koh, would you please overturn the verdict on the grounds that we let the jury forman serve the public.””

    Well then I think you need to read more than the comment boards at AppleInsider.com, I recommend Groklaw, amazing coverage making the complex legal wranglings easier to understand. Should be clear to even the biggest fanboys that the trial (at least the jury deliberations) were a farce. 11 people completely in over their heads and one idiot who lied during voir dire, appointed himself as an expert on all things patent (giving illegitimate and outright wrong testimony in the deliberation room), essentially broke every instruction the judge gave and then had the amazing sense to blab about all of this to the media afterwards. That verdict deserves to get thrown out, but regardless even if Samsung has to pay the whole billion or so, still doesn’t compare to the self-inflicted wounds on brand image Apple seems so hellbent on giving. Just see their childish reaction to the UK judgement and the judicial spanking that followed.

  • Awarren

    Wangkon – all I can do is look at your one-sided, shallow conclusions on the competition between Apple and Samsung and sigh. Do you actually consider the Examiner a reliable source on anything? What is your agenda exactly? If Apple’s price shoots up, and Samsung’s share price and fortunes tank – as it certainly will in the near to mid-term considering it homogeneous and anachronistic work environment that even most Koreans can barely tolerate – what would you say to that? No acquisitions in sight are there? But wait, Korean companies don’t need to acquire anything when they are at the top of the world!

    What about Microsoft and the Windows 8 Smartphone? Yes, Samsung can license the MS operating system and still try to manufacture the hardware mostly in its own factories – but is this the way to success?

    Does it stroke your ego that Samsung is doing so well in your mind?. What do you really know about the company? Is there anything concrete that you can add besides cherry-picking news sources that really offer nothing of value about the true future of this company?

    Do even people like DLBarch have any influence on you about the true nature of Samsux? If you are based in California I am sure you must have heard some of the horror stories.

  • jkitchstk

    #12,

    ” 11 people completely in over their heads and one idiot who lied during voir dire, appointed himself as an expert on all things patent (giving illegitimate and outright wrong testimony in the deliberation room), essentially broke every instruction the judge gave and then had the amazing sense to blab about all of this to the media afterwards.”

    “appointed himself”
    Do you mean he volunteered? Wow, that’s terrible!

    ” illegitimate and outright wrong testimony”
    Do you mean like he “illegitimately raped” the case?

    “Over their heads”
    Should American courts overturn every patent case in history then?

    Saying that the forman broke “every instruction” will be difficult to prove for Samsung but it does sound like they’ve infiltrated your recommended website with part/full time staff writers which similar actions have been rumored to occur before at particular Korean media outlets. Really, is that(“every instruction”) Samsung’s argument?

    “he had the amazing sense to blab about all of this to the media afterwards.”

    Do you mean he used his right to freedom of speech, I thought Samsung was aware that people can freely speak in America?

    Judge Koh warned Samsung to settle and wasn’t Samsung aware of how the American court/jury system operated?

    I better hurry on over to that website as fast as I can for all this “amazing coverage” that you seem to have gathered there.

    I’d put a substantial amount down on the San Jose case never being overturned, but keep dreaming.

  • http://adamsawry.wordpress.com Adams-awry

    Wangkon, nice post sir. To give a little context to the $1billion judgement against Samsung, do you have their CAPEX guidance for 2012 and 2013 (both at the cellphone division and the whole company)? Thanks.

  • http://www.xanga.com/wangkon936 WangKon936

    Hi Awarren,

    This earlier post on the subject appeared rather one sided, but I didn’t see you complaining.

    http://www.rjkoehler.com/2012/09/06/and-the-hits-just-keep-coming/

    Is one sided relative to you?

    Given what’s recently been posted about the Apple/Samsung battles, I thought my post balanced what was already out there, in a yin/yang sort of way.

    Any ways, if you don’t like the Examiner, there is:

    http://www.zdnet.com/samsung-hikes-apple-chip-prices-by-20-percent-report-7000007254/
    http://appleinsider.com/articles/12/11/12/samsung-reportedly-hits-apple-with-20-price-increase-for-iphone-ipad-chips

    I see some truth to this because the other major chip manufacturer, Taiwan Semiconductor, said no to Apple’s request to have an exclusive relationship, even when offered a $1 billion investment advance.

    http://www.bloomberg.com/news/2012-08-29/apple-qualcomm-spurned-in-bids-for-exclusive-tsmc-chip-supply.html

    Without TSMC, Samsung is pretty much the only near term game in town when it comes to reliable and timely fabrication to tens of millions of logic chips. Given the lack of competition, they have a right to increase the price, no?

    In terms of my thoughts of Samsung as a company, my direct exposure comes from people I know at Google and Qualcomm who think Samsung is a awesome company. I guess legal and business thoughts can have different opinions on a company. I’m a bottom line kind of guy and Samsung’s bottom line has been pretty amazing as of late. It’s a story that’s not being told, but from a business perspective, it should be.

  • genie222001

    Why the hell is Korea’s patent royalty $6.88 billion in deficit?

    “S. Korea’s technology trade balance lowest among OECD members ”

    The country has been reporting shortfalls in technology trade balance as it focuses more on reprocessing foreign patents rather than developing its own,” said Kang Hyun-chul, an analyst at Woori Investment & Securities Co.

    The country spent US$10.2 billion on overseas payments of royalties in 2010, up 21.3 percent from a year earlier, the organization said.

    In the cited period, local firms earned $3.35 billion from royalties paid by foreign companies, but their overseas payments far outweighed their income, leading the country to post a royalty balance deficit of $6.88 billion, the data showed.

    South Korea’s dependency on the U.S., which accounts for 57.4 percent of its royalty expenditures, also increased 23.4 percent on-year in 2010, the Paris-based club of industrialized economies added. http://english.yonhapnews.co.kr/fullstory/2012/09/10/16/4500000000AEN20120910003200320F.HTML

  • http://www.xanga.com/wangkon936 WangKon936

    Adams-awry,

    I don’t know what the capex guidance for 2013 or 2014 is nor do I have the time to look it up, but I would imagine that it would dwarf the $1 billion settlement costs. I heard just for semiconductors this year it was $6-7 billion. It’s probably a lot more for Samsung Electronics Group in general. If I’m guessing correctly, perhaps your point is that $1B is just small potatoes compared to what Samsung pays for in capex (and perhaps in R&D as well)? In that respect, I would probably have to agree with you.

    genie222001,

    I would have to guess that a lot of those royalty payments would be to Qualcomm and their 3G patents that Samsung and LG use a lot of. Also, given the patent royalty deficit, it still means that Korea is a fast follower rather than a true innovator at this point. It also means that the country does pay for the use of innovations. It may be debatable that they don’t pay as often as they should, but they do pay a lot.

  • Bendrix

    13

    I don’t think this post is quite as one-sided as you say. I’ve seen most of these stories on either macrumors.com, CNet, or the Verge. It’s true Apple’s sort of faltering these days. A lot of their recent products have been uninspiring compared to past ones, and they’ve bungled the release of the new iMac, which has been in limbo for the last five or six months, and still is not for sale though it was announced in October.

  • http://coryinkorea.wordpress.com/ 코리아

    @jkitchstk
    Perhaps there are a few things you don’t know about being a juror in the United States (of course this is obviously all for naught since you’ve obviously set yourself so strongly pro-Apple or anti-Samsung that nothing will dissuade you, you’ll just respond with baseless attacks, lacking any facts or evidence, but perhaps someone can get something out of the discussion):
    1. Judge Koh specifically asked jurors during voir dire (jury oaths) to disclose all litigation they have been involved with. Hogan didn’t. This is what we call jury misconduct.
    2. Jurors are to set aside and disregard past experience and make decisions based on the facts presented. Hogan decided to explain how he would defend the patent as if it were his in the jury deliberation room and also gave false testimony to deny Samsung’s claims saying that they aren’t patentable because (in his words) “the technologies had to be interchangeable” and used his “expert knowledge” of source code to prove this. This (wrong) evidence was not presented during the trial. We call this jury misconduct.

    3. The jury was specifically told not once, not twice but three times that the damages are only to compensate the patent holder, not punish the violator (that’s the judges job, who can triple damages) yet, once again in his own words, Hogan “wanted to make sure the message we sent was not just a slap on the wrist, We wanted to make sure it was sufficiently high to be painful”. Ignoring jury instructions again. What can we call this? Perhaps jury misconduct?

    And how do we know all this happened? Well for number 2 and 3 Hogan himself was more than happy to parade all of this in front of the media. Number 1 took more legal legwork and a bit of luck by lawyers who knew there was something wrong about this guy.

  • KrZ

    The entire realm of digital electronics is changing in my view. The last laptop I got (2.5ghz i5, SSD), simply does everything I could ask of it. The only time I ever max the CPU out is transcoding 1080p on the fly. Once your displays have reached the limits of human visual perception, what else is there to do? I don’t need a phone that can simulate the thermodynamics of shuttle re-entry. This is the first time I’ve had the experience of having every device I own do everything I could ask of it. Even in the display market there just isn’t anywhere left to go really. I think the focus will shift to developing markets now.

  • cm

    What effect will Apple’s bullying over the Taiwanese handset maker HTC into submission, have over Samsung’s defense against Apple? HTC threw their white flag in, when they agreed to licensing terms with Apple. HTC will pay to Apple, $6 to $8 for each of their Android phones that they sell. Will Samsung think about paying the Apple Tax so that they too will have the right to make handsets with flat touch screens and rounded edges, without being harassed with lawsuits?

  • http://www.xanga.com/wangkon936 WangKon936

    cm,

    Apple’s bullying has affected their relationship with Taiwan Semiconductor, the other high-quality silicon logic chip fabrication company. Apple offered them a long-term guaranteed contract and a $1 billion capex allowance advance before even one chip was produced. TSMC said no. They didn’t want so much of their manufacturing capacity to be tied up with Apple. Apple’s spotty relationship with its suppliers has made TSMC wary and suspicious. With Apple not able to guarantee capacity from Samsung’s main fab competitor, Samsung was able to jack up its prices. Arrogance has consequences Apple.

  • commander

    Samsung Electronics is on a roll even with Apple trying to fend them off as best as they can. They had record operating income in Q3 of $7.4 billion, up 91% from a year ago. This is their fifth consecutive quarter of setting a record high operating income. Their business model of vertical integration of the supply chain is working so far, as they control the supply of critical components such as the Application Processor chips and high resolution displays in addition to more commodity parts such as the Flash memory chips. Raising the AP prices by 20% to Apple will even further increase their profit, even though it may end up hurting themselves by essentially biting the hand that feeds them. But Apple has been trying to qualify TSMC anyway so raising the prices was the right move by Samsung.

  • jkitchstk

    # 20,
    “Number 1 took more legal legwork and a bit of luck by lawyers who knew there was something wrong about this guy.”

    No way, you mean Samsux “knew there was something wrong with this guy” but they still didn’t strike him down and allowed him to sit in judgement of Samsux, hmmm I wonder why? We’ll just have to see whether Judge Koh thinks Samsux lawyers should get a 2nd try at better selecting jury members.

  • tinyflowers

    they still didn’t strike him down and allowed him to sit in judgement of Samsux, hmmm I wonder why?

    Um. Maybe because he lied about his past? Had he answered truthfully, it is certain that he would have been removed from the jury and it is also certain (based on his own media interviews about how he convinced the rest of the jury) that the verdict would have been different.

  • jkitchstk

    # 26,
    You missed the “knew” part that # 20 mentioned and I quoted, so they could’ve struck him down. You better get over to that website 코리아 likes and read up.

  • tinyflowers

    They didn’t know he was lying at the time, obviously, or he wouldn’t have been on the jury. They only found out after the trial through a lucky coincidence.

  • Arghaeri

    Maybe tbey did, leave him in there and then get a mistrial.

  • http://coryinkorea.wordpress.com/ 코리아

    Thanks for pretty much repeating Apple’s fallacious argument word for word there jk. Which has pretty much gone:
    Apple: Well even though he didn’t say it, it would be obvious and easy to know, so by not knowing you gave up any right to complain about what you didn’t know when you found out about it.
    Samsung: That doesn’t make sense. Do you mean you knew about it and didn’t disclose the information to the court?
    Apple: ….
    Samsung: Well?
    Apple: ….You can’t complain about it. JUDGE TELL SAMSUNG THEY CAN’T COMPLAIN ABOUT IT!!!

    Funny thing is that this isn’t even the biggest issue, his conduct in the jury deliberation room is what should get this all thrown out. From Samsung’s strong complaint:
    “Once inside the jury room, Mr. Hogan acted as a “de facto technical expert” who touted his high-tech experience to bring the divided jury together. Dkt. 2013-1, ¶11. Contrary to this Court’s instructions (e.g., Dkt. 1893 at Instr. Nos. 24, 26, 27, 31- 33, 49-51), he told other jurors incorrectly that an accused device infringes a utility patent unless it is “entirely different” (id., ¶15); that a prior art reference could not be invalidating unless that reference was “interchangeable” (id., ¶14, 16); and that invalidating prior art must be currently in use (id., ¶17). He thus failed “to listen to the evidence, not to consider extrinsic facts, [and] to follow the judge’s instructions.” 151 F.3d at 983.5″
    http://www.groklaw.net/article.php?story=20121113142841936

    And Apple has no direct response outside of essentially “Nuh uh….”

  • http://coryinkorea.wordpress.com/ 코리아

    @Arghaeri
    Very well could be, but still was his responsibility to disclose and he didn’t so Samsung has the ammunition. Apple can’t prove that Samsung knew about it (or even that they should have known about it) unless they knew about it themselves but didn’t disclose it to the court (a big no-no), so either way it’s not Samsung’s problem.

  • Awarren

    Wangkon – Samsung is basically serving as a foundry for Apple in terms of logic chips. Unless it is in violation of its contract with Apple, or in spite of its violation considering the company is Samsung, there is not a lot Apple can do IF Samsung arbitrarily raises its prices. And that is a big IF. A rumor by MarketWatch, and subsequent spreading of those rumors does not constitute a fact. Besides, this information is supposed to be confidential – Samsung has surely always wanted it this way in the past because they have been fleeced price-wise by Apple in both logic and memory chips for around the last 7 years. But Samsung had no choice; there was no way they were going to keep the only logic fab they had up until recently (before the Texas fab) anywhere close to full capacity without the help of Apple. In fact, in that one Korea-based logic fab they were forced to produce memory chips as well to not make the fab a complete loss.

    The simple fact is that other than Apple, Samsung did not have the expertise to design and mass produce logic chips for the big players, and in the end they couldn’t even do that for Apple as Apple ended up taking over the design. Now before you start looking up the press releases for the odd chip they made for Qualcomm and others, please understand these are small scale affairs. Just recently, and at great first reluctance, Samsung’s telecom division did start to incorporate Samsung Semi’s logic chips into its phones, but note that in spite of the impressive name, these application processors are by far not the most technologically significant logic chip to go into mobile phones.

    The truth is, Samsung has made a gamble that up until now has appeared to mostly pay off with semiconductors (in particular memory), but only Samsung knows the true bottom line here and whether this model is sustainable. That model being – throw (at great, great risk) billions of dollars into semiconductor manufacturing, drive down the price of semiconductors and into bankruptcy as much of the competition as possible, making the remaining companies quiver (Samsung’s own confessed chicken game), while at the same time going through its own periods of great profits and significant losses.

    Before you start calling Apple a bully (and there is certainly some justification there), please consider the company you are comparing it to.

  • cm

    WK, in the news, the Apple’s long term strategy is to move their logic chip fabrication to Taiwan’s TSMC, and leave out Samsung altogether. Apple even lured and hired Samsung’s head chip designer, to design their own chips. What you said in post #23 seems completely contradictory to what’s being reported in Korea and outside of Korea. HTC’s licensing agreement with Apple came about after they suffered huge financial and market losses after their flagship phone was blocked from the US market by the American courts, at a crucial period of time. HTC just didn’t have the same financial resources or the muscle to fight off Apple.

  • http://www.xanga.com/wangkon936 WangKon936

    Hot damn! Apple slides 6% in just one day…

    http://buzz.money.cnn.com/2012/12/05/apple-stock-3/

  • http://www.xanga.com/wangkon936 WangKon936

    cm,

    Moving to another logic chip manufacturer will take about 2 years. Apple stuck with Samsung for at least 18 to 24 months. In that time I think Galaxy and Google Nexus volume will replace Apple volume so no net loss to Sammy.

    http://tech.fortune.cnn.com/2012/11/30/apple-samsung-chip-alternatives/

    People have been talking about Apple switching from Sammy to TSCM since 2010 like it was imminent, but it never was imminent. There are plans in the works, but one does not move 200 million chip manufacturing overnight or as easily as swiping to the next screen. Rome wasn’t built in a day. IMHO, in those two years or so Sammy will soak Apple for as much as they can.

  • wangkon936

    Before this post lost all its comments, there was a comment that accused me of being biased. I was not biased, I just saw the writing on the wall months ahead of a lot of other people.

    The Economist agrees with me, over three months afterwards, of course.

    http://www.economist.com/news/business/21570751-worlds-most-valuable-firm-may-be-past-its-prime-has-apple-peaked