The first battle in the war of Gog and Magog in the smartphone industry ended with a crushing victory for Apple (NASDAQ:AAPL) and painful defeat for Samsung (OTC:SSNLF). The web is full of comment on the ruling of the jury and its consequences for the entire technology sector, but what immediately springs to my mind is that the timing could not have been better for Apple.
In two weeks' time, Apple CEO Tim Cook will launch the new iPhone, which will be completely different from its predecessors of the past five years. Cook, who officially took over the post from the ailing Steve Jobs this month one year ago, knows that this time his competitors-- and particularly Samsung-- will think twice before rushing to the drawing board to bring out an iPhone 5 lookalike as fast as possible. This time, the competitors will have to exercise the creative powers of their people instead of their powers of mimicry, and the new iPhone will benefit from a longer period of grace than its predecessors, before rival models emerge.
When the first iPhone came out, Samsung was quickest to the drawing board, and now it is paying the price, after it was found that it infringed six Apple patents. But the damage that will accrue to it from the court ruling is negligible in relation to its dizzying success in smartphones. By contrast, Nokia (NYSE:NOK), which sniggered at the first iPhone, and took three years to realize the dimensions of the disaster that had befallen it, was almost wiped out.
Recently, Nokia's share price has been galloping northwards, doubling from the near bankruptcy level it reached six weeks ago, because it is known that the company has thousands of patents of its own, and the link-up to Microsoft's (NASDAQ:MSFT) operating system looks wiser than ever. Exactly a week before the launch of the new iPhone, Nokia will launch new smartphones, and it seems unlikely that Apple will discover that Nokia has also infringed its patents.
Steve Jobs set the aim of the war of Gog and Magog years ago when he made clear to Eric Schmidt-- now chairman of Google (NASDAQ:GOOG), and then Google CEO and a director at Apple-- that he could not remain on the Apple board while Google was developing a rival operating system. Today, Google's Android system has 60% of the smartphone market, and Apple just 25%. About half of Android's market is accounted for by Samsung smartphones, over which Apple sued and won.
In Google's favor, it should be said that it didn't wait for the ruling against Samsung to understand that, in this war, the protective sandbags are patents, and the more you have of them, the better your defenses. In this light, Google's acquisition of Motorola's telephones company for $12.5 billion makes a great deal more sense, remembering the questions raised about it when it was announced. Google will now go full steam ahead with the smartphones based on Android and protected by Motorola patents that currently account for just 3.5% of the smartphone market as a whole.
Not many people know this because it happened before the smartphone age, but, in my humble opinion, the first company to buy an active company mainly for its patents was SanDisk Corporation (Nasdaq:SNDK), which, six years ago, paid NIS 1.6 billion in shares for M-Systems. This didn't happen because of the patents on the Disk-on-Key, a product that SanDisk itself already sold, and over which it had never been sued by the patents owner, M-Systems, apparently because the patents were inadequately registered. SanDisk wanted to lay hands on M-Systems' other patents, in the NAND field, because Samsung-- which pays SanDisk hundreds of millions of dollars annually for use of similar patents-- had open access to them. SanDisk founder and then-CEO Eli Harari feared that the contract with Samsung would not be renewed in 2009, because Samsung would say that it was operating in the field on the basis of M-Systems patents, and didn't need SanDisk's.
The shortage of NAND chips that arose in the summer of 2006, after Apple started using them in its iPods, caused M-Systems founder Dov Moran to give up and to sell the company to his friend Harari. He dreamed that it would be much bigger, but that couldn't happen because it didn't have its own production lines, whereas SanDisk did. It was Moran who as a consultant to SanDisk, , in 2009 produced a crucial document in the legal battle then taking place between SanDisk and Samsung in the U.S. The document made Samsung retreat, and so, at least until 2016, it will continue to pay SanDisk hundreds of millions of dollars a year.
Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2012© Copyright of Globes Publisher Itonut (1983) Ltd. 2012 Reprinted on Seeking Alpha with permission