When HTC settled its patent lawsuit with Apple by agreeing to some set of undisclosed terms, analysts did their job, which is to estimate what this means to the stock.
The most commonly thrown-around number was $6-8 per handset in royalty payments. For some perspective, in Q2, according to IDC estimates, HTC shipped 8.8 million units. Let’s annualize this and call it 35 million units per year. It’s not a perfect estimate because phone sales are seasonal, but it’s close enough to get a handle on the overall size of a deal.
If HTC was paying even $6 per handset, then Apple’s profitability would go up by $210 million per year. Hardly chump change. But when you compare it to Apple’s profitability, which was over $40 billion in the last 12 months, it’s inconsequential. It would grow Apple’s bottom line by a mere 0.5%.
Today, HTC’s vocal CEO Peter Chou has gone on record saying that $6 per handset is an “outrageous” amount. I’m guessing this means the real settlement is way, way lower than $6, meaning that the effect to Apple’s profitability will be impossible to notice.
These patent settlements (and lawsuits) make headlines because they represent challenge, or resolution of challenge. It’s very similar to seeing two big fighters go toe to toe on a poster advertising the next big UFC match. It’s human nature to want to speculate about who’s going to win.
For Apple, it just doesn’t look like these royalties are going to matter. So winning in court shouldn’t be the goal.
Let’s look at the math another way. What if Samsung were forced to settle, paying Apple the $6 per handset that people thought HTC was paying (even though Chou says it’s outrageous, and wrong). Samsung is shipping on the order of 200 million smartphones per year. So $6 per handset means $1.2 billion per year. Again, compare this against Apple’s profitability over the last year and we’re looking at a 3% rise on team Cupertino’s bottom line.
The math points to a clear conclusion. Apple needs to focus on making awesome products and selling the hell out of them. The court battles just don’t make much difference at the end of the day.
I really enjoyed listening to the latest iMore show where Rene brought on CrackBerry.com's Kevin Michaluk to discuss his month-long use of the iPhone 5. A lot of really good points were brought up. If Apple put as much energy into fixing some of the obvious problems with its product as it does into court battles, I think it would be an even stronger company.