Samsung Tablet Relevance at Stake as Apple Europe Hearing Looms

Samsung Electronics Co.’s lawyers may have 10 days to prove that the latest Galaxy Tab is no iPad rip-off and prevent the world’s second-largest maker of tablet computers from dropping off Apple Inc. (AAPL)’s rearview mirror.

A German court on Aug. 25 will hear Samsung’s bid to overturn last week’s temporary order banning sales of the Galaxy Tab 10.1 in most of the European Union, according to court documents. Apple also is seeking to block sales of the tablet in the U.S. market, according to separate filings.

The case shows how Samsung’s deepening dispute with its rival -- and biggest customer -- across three continents is undermining the company’s ability to compete in a surging tablet market that’s forecast to grow to $53 billion by 2015. Losing Europe may deprive the South Korean electronics maker of an estimated half a million Galaxy Tab sales this year as competition escalates from Hewlett-Packard Co. (HPQ) and Research In Motion Ltd. (RIMM)

“It’s a genuine headache for Samsung,” Tim Renowden, a Melbourne-based analyst at the Ovum Ltd. research firm, wrote in an e-mail. “If these legal battles continue, there’s no doubt that it will inhibit Samsung’s sales momentum. A worst-case scenario is that Samsung’s channel partners decide that Samsung products represent a risk.”

The Dusseldorf Regional Court will likely issue a ruling within three weeks of the hearing, according to Peter Schuetz, a spokesman of the court. Either party can appeal the decision.

IPad’s ‘Look and Feel’

The hearing comes days after Suwon, South Korea-based Samsung agreed not to introduce the U.S. version of the Galaxy Tab 10.1 in Australia. Samsung’s product infringes 10 Apple patents, including the “look and feel” of the iPad, Steven Burley, a lawyer for Apple, told a Federal Court in Sydney on Aug. 1.

The Galaxy Tab 10.1, which runs on Google Inc. (GOOG)’s Android operating system, went on sale in the U.S. in June and in Korea the following month. Though slimmer than the iPad, it features a larger screen and a higher-resolution camera than Apple’s tablet computer.

A European sales ban for the Tab 10.1 would be a blow to Samsung’s target of boosting its annual tablet sales by more than fivefold this year. The company, which doesn’t disclose shipment figures, probably sold about 1.6 million Galaxy Tabs in 2010, according to an estimate by NH Investment & Securities Co. in March.

European Sales

By comparison, Apple may sell about 35 million units annually this year, according to Neil Mawston, an analyst in London at researcher Strategy Analytics. Samsung was the world’s second-largest tablet maker in the first quarter with a market share of about 16 percent, trailing the iPad’s 69 percent share, according to Mawston.

He estimates this year’s tablet sales at Samsung will reach 5 million, and if the ban stays in place for the rest of the year, the company would lose as much as 10 percent of that.

Motorola Mobility Holdings Inc. ranked third and companies including ZTE Corp. (000063) and Dell Inc. (DELL) took the rest of the market, he said. Industrywide sales could grow fivefold to $53 billion, according to Framingham, Massachusetts-based researcher IDC Corp.

Western Europe will account for 30 percent of global tablet sales this year, according to estimates at IDC.

‘Puristic’ Design

The Galaxy Tab dispute isn’t isolated to Europe and Australia. Apple filed a complaint with the U.S. International Trade Commission in Washington in July, seeking to block imports of Samsung’s Galaxy phones and tablet computers, days after asking a federal court to halt sales of the devices.

“The damage to Samsung could get bigger if the patent- related suits with Apple aren’t sorted out quickly,” said Seo Won Seok, a Seoul-based analyst at NH Investment & Securities Co. “No court ruling has been made in the U.S., but you can’t rule out a possibility that there will be a similar situation.”

The U.S. will account for 47 percent of global tablet sales this year, according to IDC.

In the German case, Samsung, the world’s largest maker of televisions, memory chips and flat-panel displays, could argue there’s a limit to how much protection Apple can seek on tablet designs, said Timo Ehmann, an intellectual property lawyer in Munich.

“The problem is that the iPad’s design is already pretty puristic, so any other tablet will necessarily remind you of that,” Ehmann said in an interview. “A tablet is flat and has a touch screen. It’s difficult to picture how you can make one that looks fundamentally different.”

Symbiotic Relationship

Steve Park, a Seoul-based spokesman for Apple, said the company needs to protect its products. Nam Ki Yung, a Seoul- based spokesman for Samsung, referred to the company’s statement last week that said it’s “disappointed” with last week’s court decision in Germany and will take “all necessary measures” to protect its innovations.

The two companies rely on each other as Apple buys components from Samsung, including memory chips, displays and the processors that run the iPhone and iPad. Sales to Apple accounted for 5.8 percent of Samsung’s revenue in the first quarter, according to Samsung.

Samsung and Apple have been suing each other in the U.S., Germany, Japan and South Korea since Apple claimed in an April lawsuit that the Galaxy smartphones and tablets “slavishly” copied the iPhone and iPad. In March, Chief Executive Officer Steve Jobs gave Samsung the top billing in a chart proclaiming 2011 the “Year of the Copycats.”

“It clearly shows how scared Apple is of Samsung,” said Mark Newman, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “Samsung is clearly Apple’s strongest rival and strongest competitor in the future, not just in tablets, but also smartphones.”

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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