Why Are Apple Bears Jumping on This?

Shares of Apple (Nasdaq: AAPL  ) started off in the green this morning, up by roughly 1%, potentially as bulls tried to muster up the strength to overcome the weakness that's lately sent the stock into correction territory. Things were proceeding along swimmingly before suddenly reversing  course and trading down over $17 from the high (as of this writing) on reports  that a U.S. appeals court has overturned a preliminary injunction banning the sale of the Samsung Galaxy Nexus.

That device is the current Google (Nasdaq: GOOG  ) Nexus flagship, even though it was released nearly a year ago and the search giant is in need of a new Nexus smartphone. This preliminary injunction was imposed over the summer, in part related to some patented functionalities with Apple's Siri assistant, among other things. The appeals court has granted Samsung's request to lift the ban so the South Korean company can continue selling the device as it challenges  the ruling, saying the lower court in California had "abused its discretion in entering an injunction."

A $17 swing translates into a market cap loss of approximately $16.1  billion for Apple investors. Should shareholders be concerned about this ban being struck down?

No.

There are two reasons why this news is mostly irrelevant for Apple. First off, the ban wasn't even in effect, and Galaxy Nexus sales directly through the Google Play store were only suspended for a matter of days, and sales had resumed  in July almost as quickly as they were halted. Second, Galaxy Nexus sales are "minuscule," so the device remaining on the market can hardly be viewed as a major competitive threat.

Don't just take my word for it -- Samsung's lead attorney John Quinn was the one who called sales "minuscule" and therefore doesn't harm Apple. Quinn had said  that Sammy had only sold about $250 million worth of the device in its first two quarters, which would represent at most 0.5% market share. In comparison, Apple sold $16.2 billion worth of iPhones last quarter, and that even fell short of expectations.

The only possible concern is here that perhaps courts may continue siding with Samsung, and Apple's other injunction requests will fall by the wayside. Even then, Apple's doing just fine competing without the assistance of legal interventions. iPhone 5 supply constraints are far more pressing right now.

If Samsung itself doesn't think the Galaxy Nexus is a threat to even the older iPhone 4S, why should investors be scared about its prospects competing with the iPhone 5?

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Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 12, 2012, at 8:01 AM, st0815 wrote:

    Don't really disagree with your general observations, but 0.5% and $250 million are not miniscule. Any other company but Apple and Samsung would be delighted to grow their market share by that amount. And considering the $1 billion judgment: that's already a quarter of that. (Sales are not profits, but still.)

  • Report this Comment On October 13, 2012, at 1:46 PM, EquityBull wrote:

    Yes it is miniscule because you have to take it in terms of the entire market. In a vacuum no it is not. Most co's or people would love 250 million in sales. However next to apple's annual sales it is a rounding error

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