Samsung Slumps Most in Four Years on Concerns of U.S. Sales Ban - San Francisco Chronicle

Aug. 27 (Bloomberg) -- Samsung Electronics Co. plunged the most in almost four years, wiping out more than $10 billion in market value, on concern some of its devices may be banned in the U.S. after a jury said it violated Apple Inc. patents.

Samsung plummeted as much as 7.7 percent after a California court on Aug. 24 ruled the world’s biggest handset maker infringed six of seven patents. Jurors said the Suwon, South Korea-based company must pay more than $1 billion in damages in the first lawsuit between the dominant global smartphone rivals to go before a U.S. jury.

A ban may undermine Samsung grip on a smartphone market valued at $219.1 billion by Bloomberg Industries and set a precedent for rival handset makers that use Google Inc.’s Android operating system. A judge scheduled a hearing next month to consider Apple’s request for a permanent U.S. sales ban on devices such as the Galaxy S and S II smartphones and the Galaxy Tab 10.1 computer.

“What’s concerning is whether any ban will be extended to flagship models and will have impact on cases in other places,” Seo Won Seok, a Seoul-based analyst at Korea Investment & Securities Co., said by phone today. “Perhaps Samsung has technology to avoid some infringements, but they also need to come up with ways to get around Apple’s patents within the Android operating system.”

Samsung Memo

Samsung slumped 7.5 percent to 1.179 million won as of 2:03 p.m. in Seoul trading after earlier dropping as low as 1.177 million won. The stock had gained 21 percent this year through Aug. 24, compared with a 64 percent climb for Apple.

Yields on Samsung’s five-year $1 billion U.S. dollar- denominated bonds due April 2017 rose 4 basis points to 1.6 percent, according to prices from Credit Agricole SA.

It’s “regrettable” that the verdict has caused concern among employees and customers, Samsung said in an internal memo on its blog today. “We trust that the consumers and the market will side with those who prioritize innovation over litigation, and we will prove this beyond doubt.”

The company will ask the judge to overturn the verdict and, if she doesn’t, will appeal the case, Mira Jang, a spokeswoman for Samsung, said in an e-mail.

The verdict may delay Samsung’s introduction of new products using Android software so it can redesign them.

Smaller iPad

North America is the third largest region for Samsung’s mobile-phone sales after Asia Pacific and Western Europe, according to HMC Investment Securities Co. The Korean company generated 16 percent of its revenue in the Americas as of June 30, according to data compiled by Bloomberg.

Samsung vaulted to the top of the global smartphone market by introducing a variety of Galaxy models using the Android operating system. The company may have to postpone its product releases at a time when it needs to compete against Apple’s new iPhone and possibly a smaller iPad.

“The verdict is worse for Samsung than what many had anticipated, and it will have to change some products in its pipeline,” Chang In Whan, president of Seoul-based KTB Asset Management Co., which oversees the equivalent of $5.8 billion, said by phone. “There could be delays in developing and releasing new models, which together with a potential sales ban could weigh on corporate value.”

Injunction Chances

U.S. District Judge Lucy Koh, who presided over the four- week trial in San Jose, California, set a hearing for Sept. 20 on Apple’s request for a sales ban on some Samsung products. She ordered Apple to file a one-page chart by today identifying which devices it seeks to ban. She could also later triple the damages under federal law.

“We expect there is a two-thirds chance of an injunction against Samsung products, Peter Misek, an analyst at Jefferies & Co. Inc., wrote in an Aug. 26 report.

Samsung’s schedules for introducing products won’t be affected by the verdict, James Chung, a Seoul-based spokesman for the company, said by phone on Aug. 25.

The global lineup for the rest of this year includes the next version of the Galaxy Note, which sold more than 10 million units in less than a year. The company began selling a tablet edition of the Note this month, following the May release of the Galaxy S III, the newest version in its bestselling smartphone series.

Capital Spending

Samsung, which has gotten around other sales bans by modifying some product features, has sought to differentiate its products since the global patent fight with Apple began last year, and the design and feature of the Galaxy S III may be distinctive enough to avoid a ban, Seo said.

Samsung -- the largest maker of computer-memory chips, flat-screen panels and televisions -- plans 25 trillion won ($22 billion) in capital expenditure this year to boost manufacturing capacity, including 15 trillion won for chips and 6.6 trillion won for flat-screen panels used in smartphones, tablet computers and TVs.

The company had cash and near-cash assets of 15.5 trillion won as of June 30, according to data compiled by Bloomberg.

‘‘Samsung has deep pockets and they are going to change some designs up,” said Michael Risch, a patent law professor at Villanova University in Pennsylvania.

The verdict may affect other makers of Android-based devices. Apple has sued other smartphone makers, including HTC Corp., the world’s fourth-largest, which generated $15.8 billion in revenue last year mostly by selling phones including the Desire and Sensation models.

Largest Customer

HTC shares dropped as much as 3.2 percent to NT$254 in Taipei trading today.

“Having Samsung’s products banned in the U.S. may be a bigger danger to HTC than the damages award because of the precedent it sets for the industry,” said Marcus Clinch, an intellectual property lawyer at Eiger Law in Taipei, who isn’t involved in any of the cases.

Two of the patents in the case brought by Apple against Samsung are also part of the iPhone maker’s case targeting more than a dozen HTC devices before the International Trade Commission. HTC declined to comment in an e-mail.

Apple is Samsung’s largest customer, even as they compete to sell phones that allow users to surf the Web and play games, and as they fight in courts on four continents over patent infringement claims. Apple accounts for about 9 percent of Samsung’s revenue, making it the company’s largest customer, according to data compiled by Bloomberg.

“It’ll take some time for an actual sales ban to take effect, and Samsung will appeal, making it a long-term fight,” Heo Pil Seok, chief executive officer at Seoul-based Midas International Asset Management Ltd., which oversees $5 billion, said by phone. “This will be an uncertainty for Samsung, and investors hate uncertainty the most.”

--With assistance from Sunil Jose in Princeton and Terje Langeland in Tokyo, Taejin Park in Seoul. Editors: Michael Tighe, Frank Longid

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net