Seeking Alpha
Long only, medium-term horizon, tech, solar
Profile| Send Message|
( followers)  

As our Daniel Fridson noted recently Samsung (OTC:SSNLF) has been doing very well lately, especially in the mobile devices space.

The company has sold 10 million new Galaxy phones since their April launch, half in the last five weeks. This despite its ongoing legal disputes with Apple (NASDAQ:AAPL), disputes which Apple has mainly been winning.

As FossPatents notes most of Samsung's suits against Apple have come to nothing, and there is little prospect that will change. Meanwhile, the Galaxy can't be sold in Germany, and the German's court ruling could be used to deny the Galaxy access to the U.S. market as well, despite Verizon's recent entry into the case on Samsung's side.

My view is that these cases are a proxy for China's direct entry into technology markets under its own brands, with Samsung standing in for China. U.S. companies across the ecosystem, from the operating system [Apple and Google (NASDAQ:GOOG)] to the mobile brand [Motorola (NYSE:MMI)] to the chip set [Broadcom (NASDAQ:BRCM) and Qualcomm (NASDAQ:QCOM)] want to defend their share of the market from Chinese competition, their value-add is software, and thus courts become the venue for keeping China out of our tech markets.

Samsung is not an innocent bystander in this, given that it sources from China (as does everyone else) and its own results demonstrate why the market entry question is key. As Fridson notes, the company's margins on commodities like LCD Displays and memory chips continue to wane, but the company remains healthy thanks to phone sales – branded phone sales.

Samsung's Bada OS, in which it's trying to enlist other Asian phone companies, is usually treated as a response to Google's acquisition of Motorola. But its target may well be Baidu (NASDAQ:BIDU) and Alibaba (OTC:ALBCF), Chinese e-commerce companies that have introduced their own platforms, dubbed Baidu Yi and Aliyun respectively.

Here's the problem. Despite their best efforts, even Chinese consumers prefer American software designs. That's why there are so many fake Apple stores there. Samsung wants market entry through Bada, and an alliance with Baidu and Alibaba would help it attract the software developers it needs to get into the market.

If Samsung can't tear itself away from being merely an Android clone, its opportunities in western markets could be severely limited by law courts. Investors should take note.

Source: Samsung Legal Troubles A Proxy For China