5 Tech Stocks Hinging On Patent Wars

| About: Samsung Electronics (SSNLF)

Will this be the year of the tablet? That's the question being bandied about as Samsung (SSNLF.PK) announced that its sales of the Samsung Galaxy Note helped propel its first quarter profits of 2012 to record levels.

The South Korean company is known worldwide for its smartphone devices, and now its Galaxy Note has upped the ante for other industry manufacturers by combining the tablet concept with a smartphone. I think the idea is great, and as the company's earnings show, so do any consumers who are eagerly snapping up the device.

Recently, Samsung released its pre-earnings guidance report, and estimated that its profits for the first quarter of 2012 will be $5.1 billion based on $39.8 billion in sales. The profits amount to an increase of almost 100% and a revenue increase of about 20%.

Total sales for fiscal 2011 hit an all time yearly high. The surge in sales from its telecommunications business performance resulted in its 2011 profits being up 90%. It says shipments of Samsung smartphones rose by approximately 30% in the fourth quarter, compared with the previous quarter.

When Samsung's earnings are released later this month, they are expected to be in line with the previous quarters' increases that were due largely to the growth in Samsung's telecommunication business. Specifically, strong sales of the Galaxy S II, Samsung's flagship smartphone, and the Galaxy Note are behind the growth in Samsungs financials.

In fact, sales of its smartphones remain the main driver behind Samsung's profits. In addition to the Samsung Galaxy S II, Samsung has a full lineup of high-end mobile devices, such as the GALAXY Nexus and entry-level models. They all drove up revenue for the fiscal 2011 by almost 40% compared with the previous year.

Looking forward, Samsung sees the global demand for its smartphones and tablet PCs to increase significantly. However, it believes that the growth momentum for feature phones is expected to stay static. Samsung credits emerging markets and the spread of LTE (Long-Term Evolution) wireless telecommunications technology as also contributing to the growth of the smartphone market. This market is expected to grow by more than 30%.

I believe that Samsung's growth will continue given the attraction and popularity of the Galaxy Note. It's bigger than a smartphone, but smaller than a typical tablet. It comes with a stylus that many who grew up with PDAs had longed for with tablets. The mere fact that the note is a hybrid between a smartphone and a tablet is by far the biggest threat to Samsung's competition. I heard a late night talk show host boast about all the benefits of the iPad that ranged from storing all of your music, photos and documents. The joke was, "my iPad does everything my iPhone does, except let me talk on it!"

Samsung's Galaxy Note, which started being sold in the U.S. in February, addresses this. I expect its sales to continue to soar. Since the fall, more than two million of the units have been sold.

In addition to Apple (AAPL), LG (LPL) and Sony (SNE) represent competition to Samsung. However, I see Apple as Samsung's main competitor. Its dominance in the market is largely due to the iPhone. Samsung benefits from its phones being powered by Google's (GOOG) Android platform.

Even though Samsung has launched this innovative phone and tablet device, I don't expect it to eat significantly into Apple's market share. That's largely due to the extensive number of followers that Apple has developed over the years through its Mac computer, iPods, iPhones and iPads. This group seems enamored by anything Apple roles out, and they are less likely to jump ship and buy a Samsung tablet just because they can use it as a phone.

Also on the horizon is the launch of the new Apple iPhone and new Galaxy S smartphone. It will be interesting to see how they will fair.

The battle between the two powerhouses is playing out it a court, as Apple is hell bent on keeping Samsung from selling its Galaxy tablets and smartphones. Apple charges that Samsung has infringed on its patents for the iPhone and the iPad.

It's understandable that Apple sees Samsung as a viable threat. There's a lot to be said to Samsung's ability to attract customers with a cutting-edge product as a tablet/smartphone.

Already, a trial judge has ruled that Samsung can continue selling its Galaxy tablets and phones while the patent-infringement case waits to go to trial.

If Apple's patent infringement lawsuit is successful, it could seriously affect the sales of popular Android devices, especially those from Samsung.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.