Apple Wins a Battle Against Samsung... But Not Where You Think

Apple and Samsung do not just compete for consumers with their phones and tablets. So where else do the two companies compete?

May 12, 2014 at 9:30PM

Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF) continue to duke it out in the mobile electronics wars as Apple's latest incarnation of the iPhone, the iPhone 5, goes up against Samsung's just-released Galaxy S5. The two companies also battle for consumers with their tablets as Apple's iPads compete with Samsung's Galaxy Tabs. While these companies compete with one another through their operations, they also compete with each other for patents as well. The electronics makers battle each other in the courtroom as well as at their stores around the world.

Apple wins a battle in court
Apple scored a victory against Samsung in a U.S. courtroom on Friday, May 2, 2014 by winning a patent suit. The jury found that Samsung infringed on two of Apple's patents and ordered Samsung to pay $119.6 million to Apple. Apple's suit accused Samsung of infringing on several of Apple's iPhone features, including its universal search and slide to unlock functions.

Apple had been seeking over $2 billion in damages so the $119.6 was minuscule on a relative basis. Apple did win a suit in 2012 against Samsung, however, in which the court ordered Samsung to pay Apple over $900 million. Nonetheless, both of these companies are well-capitalized so hundred-million dollar fines do not greatly affect them. Both companies have also been trying to ban the sale of each other's products in their suits, but neither has been successful up to this point.

Out of court the competition heats up
Out of the courtroom, the companies are experiencing increasing competition from not only each other but also from the other players in the market. According to Strategy Analytics, both Samsung and Apple lost share in the global smartphone market in the first quarter of 2014. Samsung's share dropped to 31% from 32% in 2013's first quarter. Apple's share dipped even more, dropping to 15% from 17% in the same quarter of the prior year.

Apple's drop wasn't as dire though as its phones are only on the higher end of the market and command higher margins than Samsung phones. Apple's strategy has always been to offer premium products, so market share isn't as important for Apple as it is for other manufacturers that concentrate on delivering their products at the lowest cost.

Apple as an investment
Apple's stock continues to look attractive with a dividend yield of 2.3% and $23 billion of share repurchases over the last six months. The company also announced that it will be increasing its dividend by about 8% to $13.16 per share and its share repurchase program will also increase to $90 billion from $60 billion. The company plans to return a staggering $130 billion to its shareholders through 2015 under its capital return program. With a reduced share count and an increased dividend, Apple's stock is looking increasingly attractive.

Furthermore, Apple trades at a price-to-earnings ratio of only 14.2. In sharp contrast, the S&P 500 trades at a P/E of 18. Apple also trades at a low forward P/E of 12.1 against the market's 16.7. So Apple is much cheaper than the overall market on a current and future basis. Investors are valuing Apple's earnings at less than the S&P 500 average, but Apple is also a significant cash generator. Apple generated $36.2 billion of cash flow from operations in just the last six months and $28.2 billion of free cash flow over the same period. Apple has the unique and enviable problem of trying to figure out what to do with all of its cash.

Apple's future looks bright
Apple is just coming off a quarter in which it increased both its revenue and earnings from the prior year's quarter. On revenue of $45.6 billion, Apple generated a profit of $10.2 billion or $11.62 per share and its gross margin increased to 39.3% from 37.5% in the second quarter of 2013. The company has shown resilience in a tough phone and tablet market and it has delivered record results, beating Wall Street's estimates in addition to its own. It will continue to go back and forth with Samsung in the courts, but the recent suits have not proven material to its business. Given its valuation, Apple should produce good returns for investors going forward.

The biggest thing to come out of Silicon Valley in years, but Apple isn't the best way to play it
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information