HTC statement about Apple royalties confirms the money is irrelevant

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.

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

More Posts

 

2
loading...
1
loading...
28
loading...
0
loading...

← Previously

Deal of the Day: 36% off Incipio Feather Ultralight Hard Shell Case for iPhone 5

Next up →

Apple iOS and Mac gifts: 2012 holiday guide

There are 6 comments. Add yours.

mech1164 says:

I will say if Apple will be not as belligerent toward the OEM's They will play ball with them, HTC case in point. Outright copying is bad and Samsung is still in a pitched battle because of this. Apple now though really does have to step up it's game. Otherwise what has happened to RIM may be in Apples future. To be Honest that works to nobodies favor.

Rolf says:

I feel like Apple probably doesn't see this as a way to make money, but rather a way to keep any competing smartphone out of any potential customer's hands that they can, in any way that they can. Apple might sell more phones if people see/think "oh, maybe I'll buy the iPhone instead..." after seeing a highly-publicized court battle in favor of Apple. And if Apple can take it a step further and have the phone removed completely, they will.

The question everyone seems to ask of Apple though seems to be how much business are they going to drive away with their legal pursuits?

Gazoobee says:

I think you've come to a faulty conclusion when you say at the end "The court battles just don’t make much difference at the end of the day."

What you really mean to say is that the court battles don't make much difference to the profitability of the company's product mix, which is not the same thing at all. There are many more reasons to go to patent court than simply the money.

It was a given from the first day that Apple has no need for the money. That doesn't equate to it being a bad idea to take all this stuff to court.

wormeyman says:

"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."

Did someone else write this?

SockRolid says:

Re: "The court battles just don’t make much difference at the end of the day."

Not at the end of any given day. But at the end of, say, 20 years, they all add up. Bit by bit, Apple is building a massive wall of legal precedent. They're being granted patents, they're being awarded damages, they're causing injunctions against infringing products. And they'll use all of that legal precedent as ammunition in future court battles. The 21st century is still young.

I understand the need to appear "impartial" at nearly all costs, even if it means spinning Apple legal wins to soothe non-Apple-fans. Alienating all readers except Apple fanboys will reduce your Page ranking. But at some point, the spin reaches a tipping point. It becomes too obvious. Just sayin'.

robert.walter says:

With these wins, Applemearns more than enough to fund their army of litigators, with more than enough left over to hire a bunch of engineers....

Why do people think that if you litigate, you can't innovate. That's like saying one can't do both drama and comedy or be an athlete and a scholar ... It is the silliest form of typecasting.

And let's get it straight, the purpose of patents is to block your competitor from using your ideas with out paying you what you demand, or you may even refuse to license*, but in any case, this forces your competitor to innovate to create a unique technical solution different to the one you patent protected.

In my book patents are good for creativity because they prevent mindless copying, and drive creativity, and employment of problem solvers, if the company without the patent really wants to compete.

* obviously I'm not talking about frand patents here.