Samsung Electronics shares tumbled around 7 percent on Monday, wiping $12 billion off the South Korean giant's market value, as a sweeping victory for Apple Inc in a U.S. patent lawsuit raised concerns about its smartphone business - its biggest cash cow.
Samsung, which says it will contest the verdict, was ordered to pay $1.05 billion in damages after a California jury found it had copied critical features of the hugely popular iPhone and iPad and could face an outright sales ban on key products.
"There are still too many variables including the final ruling to come at least a month from the recent verdict, and whether there will be a sales ban on Samsung's main sellers such as the Galaxy S3," said a fund manager at a Korean asset management company that was one of the biggest institutional holders of Samsung's stock as of end-March.
Shares in Samsung - the world's biggest technology firm by revenue - tumbled as much as 7.7 percent, its biggest daily percentage drop in nearly four years, to 1.177 million Korean won ($1,000), versus a 0.2 percent drop in the broader market.
Trading volume was heavy, more than doubling the last week's daily average by early Monday trade.
In the most closely watched patent trial in years, the jury at a federal court in San Jose, California, just miles from Apple's headquarters, found that Samsung infringed on six of seven Apple patents.
The verdict, which surprised many analysts with its speed - coming after less than three days of deliberations - and the extent of Apple's victory, will likely solidify the U.S. firm's dominance of the exploding mobile computing market.
Apple's triumph was also seen as a blow to Google, whose Android software powers the Samsung products that were found to infringe on Apple patents.
Analysts estimate Samsung's earnings will be reduced by 4 percent this year due to increased patent-related provisioning.
"Samsung should be okay - it means a 4-5 percent hit to the bottom line," said a Hong Kong-based hedge fund manager who declined to be identified.
"Both companies are in the midst of a squabble but I don't think it's a structural negative for Samsung. At the end of the day, as Forbes reported recently, Samsung has 65,000 patents versus 9,000 for Apple. Furthermore, Apple relies on Samsung for the processing brains of their phones. I sold Samsung four months ago but am watching the stock closely now."
The court case had weighed on Samsung's stock in the week leading up to Friday's verdict, but even after Monday's slide it remains up around 75 percent over the last 12 months, during which time galloping smartphone sales have powered record profits.
EYES ON GALAXY S III
Apple plans to file for a sales injunction against Samsung, its lawyers said, and the judge in the case set a hearing date for September 20. Samsung, in turn, said the verdict "is not the final word in this case".
Top executives at Samsung, led by vice chairman Choi Gee-sung and head of its mobile division JK Shin, held an emergency meeting on Sunday.
The biggest concern for Samsung remains whether its latest flagship product the Galaxy S III, which was not included in the case, will be also targeted by Apple and included in the list of products banned in the U.S. market.
The model is Samsung's best selling smartphone, with sales topping 10 million since its late May debut.
But Samsung's skill as a "fast executioner" - quick to match others' innovations - would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban came into place, analysts said.
"The ruling is a costly lesson for Samsung - but also an opportunity for a true alternative to Apple's well-known hardware with more innovative thinking and imaginative products ahead," Morgan Stanley analysts said in a note.
"There are more ways to build a touch screen smartphone and thanks to its fast execution capability, Samsung could quickly work around design changes, upgrading models and introducing new technology such as flexible displays, Galaxy S III and Galaxy Note to differentiate its devices from Apple."
Samsung was disappointed by the verdict and plans to keep the legal fight to have its claims accepted, according to internal memo sent to its employees, that was seen by Reuters.
"We've sought to settle this through negotiations, as Apple is our customer but had no choice but to counter sue," the memo said. "There's no firm in history which has sustained growth by trying to stifle competition with legal fights on patents, rather than fairly compete with innovation in the market place." ($1 = 1134.0500 Korean won)
(Additional reporting by Joyce Lee; Editing by Alex Richardson)