Samsung-Apple Heats Up Again With ITC Import Ban

by Brad Moon | June 7, 2013 9:09 pm

The smartphone war is back with a vengeance.

The ongoing battle in courtrooms around the world between two of the biggest consumer technology companies — Apple (AAPL[1]) and Samsung (SSNLF[2]) — might have quieted down somewhat over the past few months, but it’s heating up again. Samsung, who’s been on the losing end of many of these (including a massive $1 billion decision last August), is savoring a significant victory this round.

A ruling by the U.S. International Trade Commission says Apple has violated a Samsung patent involving 3G data transmission. The company will be barred from importing the identified products into the U.S. once the ruling comes into effect in six months.

Unless the order is lifted under appeal or President Barack Obama vetoes the decision, a slew of older Apple devices — including versions of the iPhone 3, iPhone 3GS, iPhone 4, iPad 3G and iPad 2 3G — would no longer be available in the U.S. market[3]. (You can see the full list of devices and which carrier-specific versions are affected on the ITC’s ruling[4].)

Any Apple-watcher who scans the list will quickly note that most of these devices are either discontinued or on their way out anyway. Apple still sells the iPad 2 as its low-cost, full-sized tablet offering, but how many of those are the 3G version? Most people tend to buy a 16 GB Wi-Fi model (the cheapest), and if they need occasional wireless connectivity, tether it to their smartphone.

The one device on that list that could seriously hurt Apple is the iPhone 4. Yes, it’s a 2010 vintage device, but it’s had a critical place in Apple’s product lineup as the company’s budget offering. You can get an iPhone 4 at AT&T (T[5]) for 99 cents on a two-year contract. The next cheapest model after that is the iPhone 4S (which is not covered by the ban) for 99 bucks.

Forbes did the math and figures that if the iPhone 4 import ban held up, Apple’s revenue hit for lost U.S. iPhone 4 sales would be in the $1 billion range[6]. That number sounds awfully familiar[7] …

It seems unlikely that President Obama would actually block the ITC ruling. This ruling could hurt Apple, but it’s not going to jeopardize the company; thus, intervening would be politically risky for relatively low stakes. And according to the Washington Post, the last President to veto an ITC ruling was Ronald Reagan[8].

Besides, Apple has already said it will appeal the decision, so there’s a decent chance that could end with the ruling being overturned without getting the president involved.

And what if Samsung prevails? Well, we’re pretty sure Apple is working on a low-cost iPhone, frequently referred to as the “iPhone Mini.”[9] Speculation has the device targeted for China and emerging markets with a release later this year, but Apple could potentially divert some of the production to the U.S., replacing the iPhone 4 as its entry-level smartphone.

Then there’s the rumored iPhone trade-in program, which Apple is supposedly considering. Bloomberg reports Apple might offer to buy back[10] iPhone 4 and iPhone 4S models from consumers to make an iPhone 5 (or iPhone 5S once released) a low-cost or no-cost option. AT&T is already doing this[11], offering as much as $200 for an iPhone 4S.

The iPhones that are traded in could be refurbished and sold in emerging markets, and Apple already does a booming business selling refurbished gear, including iPods and iPads, through its website[12] — it could make those traded-in iPhone 4 and iPhone 4S smartphones available to U.S. wireless carriers as budget models, replacing blocked iPhone 4 imports. In the trade-in scenario, Apple could move more of its flagship iPhone models out the door than it would otherwise since the cost-of-entry barrier for upgraders would be eliminated.

Apple stock began its long descent after iPhone 5 launch sales disappointed last September (they were up, compared to the iPhone 4S, but not up enough). What would happen if this round, Apple had its usual buyers, but boosted that volume by having a load of existing iPhone owners trade in their devices to get the iPhone 5S (or whatever it ends up being called) for next to nothing?

AAPL took a small hit when the news of the ruling was released and its stock is down nearly 3% on the week. However, I don’t think the effect of the import ban will be long-lasting, even if it’s upheld. Apple has options, and some of them might actually end up improving its lot.

In the meantime, look for the courtroom drama to continue. The Verge has been tracking the Apple/Samsung legal battle for the past few years and as of April 3, it was at 161 updates[13] (not including the latest skirmish).

At this pace, it could hit 200 before the year’s out.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. SSNLF:
  3. would no longer be available in the U.S. market:
  4. on the ITC’s ruling:
  5. T:
  6. Apple’s revenue hit for lost U.S. iPhone 4 sales would be in the $1 billion range:
  7. awfully familiar:
  8. the last President to veto an ITC ruling was Ronald Reagan:
  9. “iPhone Mini.”:
  10. Apple might offer to buy back:
  11. AT&T is already doing this:
  12. selling refurbished gear, including iPods and iPads, through its website:
  13. it was at 161 updates:

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