Apple won't settle cheaply in Android patent suits, says analyst

The company is likely to hold out for hefty settlements in its patent-infringement suits against various Android handset vendors, says a Deutsche Bank analyst.

Apple will likely hold out for a major settlement in its patent suits against Android vendors, says Deutsche Bank's Chris Whitmore.

As Apple and Android have been battling in the marketplace, they've also been duking it out in the courts.

Apple has been embroiled in a slew of lawsuits against such vendors as Samsung, HTC, and Motorola. Though aimed at each company, the suits are an overarching attempt to target Android for alleged patent infringements over multitouch and other technologies, noted Whitmore in an investor's note out yesterday.

Apple's legal strategy has also been designed to stifle the growth of Android, says the analyst.

Android smartphone vendors shipped 240 million devices last year, estimates Deutsche Bank. Another 390 million are forecast to ship this year, followed by 465 million in 2013.

Apple shipped 84 million iPhones last year, with 112 million expected this year and 130 million in 2013, according to the investment firm. As a result, shipments of Android phones are around four times higher than those of the iPhone.

By holding out for a big settlement, Apple could hurt Android in three key ways, according to Whitmore.

"First, it could convince additional handset manufacturers contemplating use of the Android OS to look elsewhere for OS support" the analyst said. "In addition, it could slow developer investment in the Android platform. And finally, it makes Android more costly for vendors to support (litigation expense, etc)."

Whitmore painted four possible outcomes to Apple's legal salvo against Android:

  1. The cases are settled with a per-unit license fee paid to Apple.
  2. Apple handicaps Android's feature set and/or distribution channels and grabs 25 percent of the platform's future market share.
  3. The case ends up neutral with no winner.
  4. Apple loses and files a counterclaim.

Apparently discounting scenarios 3 and 4, Whitmore believes the first outcome would reward Apple with a fee of $10 for each Android device sold, adding around $35 per share to its stock price. The second outcome would be even more favorable with 25 percent of the Android market adding up to a value of around $260 per share.

"As a result, we suspect Apple is unlikely to settle cheaply," said Whitmore. "Although Apple has not expressed a desire to settle, most believe a settlement could occur resulting in [a] $10-per-unit software licensing fee. Beyond the monetary benefit to Apple, a settlement would make Android-based handsets incrementally more expensive and less competitive due to the higher OS cost and would likely support incremental iOS share gains vs. Android."

But with the potential value that Apple stands to gain, the company is unlikely to settle the suits anytime soon, says Whitmore, who expects the legal war to continue well into 2013, adding up to a "long, drawn out process."

 

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