Apple win sends mixed signal for suppliers When a Californian jury handed down the landmark ruling that Samsung had infringed several Apple patents, the shockwaves from the courtroom were felt across the Atlantic. Apple's victory against the South Korean electronics group was emphatic, with the court issuing a US sales ban on eight older-model Samsung smartphones, and awarding more than $1bn in damages. In the world of technology companies, such courtroom battles between electronics giants inevitably have ripple-down affects on the fortunes of UK chipmakers, such as Edinburgh-based Wolfson Microelectronics. The ramifications of the Californian court's decision spooked some investors, who initially drove down shares in the Scottish chipmaker. Wolfson counts Samsung as one of its biggest customers, accounting for an estimated 30 per cent of its annual revenues. Although the ruling did not affect Samsung's flagship S3 smartphone, which in some versions uses Wolfson's audio hub technology, nervous investors in the lossmaking Scottish chipmaker feared that Apple's attempts to have more Samsung devices banned could have negative implications in the future. The result was a 7.4 per cent fall in Wolfson's share price on the first trading day following the US ruling. However, that initial reaction appears to have been overdone, with Wolfson recovering most of its losses since the August 25 decision. "Samsung comprised about 27 per cent of Wolfson's sales in the first half of 2012 - so Wolfson would have the most to lose if Apple is successful in its new pursuit to have the S3 banned," says Eoin Lambe at Liberum Capital. Apple's initial legal challenge targeted the US sale of Samsung's older generation smartphones - the S and S2 range - neither of which include Wolfson's audio chips. Wolfson's technology is found in some of the eight smartphones due to be banned in the US in December, however, and analysts have estimated the impact to the Scottish group's full-year revenues could be several million dollars. By comparison, Wolfson's 2011 turnover was $157m. "The version of the S3 sold in the US relies on a Qualcomm audio chip, while Wolfson's technology is in the version shipped to the rest of the world, so in the unlikely event that Apple succeeds in blocking the S3, Wolfson would see limited impact," says Mr Lambe. However, a potential problem for one UK chipmaker could provide a boost for another: Apple supplier Imagination Technologies. "For Imagination, the disputes are more relevant, since its technology is in Apple devices and many older Samsung devices, but not as yet in the Galaxy S3," says James Goodman at Investec. Although Imagination has never confirmed it, the group is heavily reliant on Apple contracts, with an estimated 40 per cent of its technology division's revenue stemming from the US device manufacturer. "Imagination Technologies is a key beneficiary from Apple's potential market share gain, and those that have a potential negative are Wolfson and CSR, which both supply to Samsung," says Alex Jarvis at Peel Hunt. Although likely to be affected by the ruling, CSR's exposure to Samsung is relatively minor, with analysts estimating that less than 5 per cent of its revenues emanate from the South Korean group. "All of Apple's products use Imagination's graphic processing unit, so you could say that Imagination is in Apple's camp, and Wolfson is in Samsung's camp," agrees Mr Lambe. The implications for intellectual property owners such as Arm Holdings and Imagination - whose business models involve receiving a royalty from each chip sold - appear to be positive. Should the withdrawal of Samsung's lower-end smartphones from the market prompt consumers to trade up to a more expensive device - made by either Apple or Samsung - both Arm and Imagination would be beneficiaries, says Mr Goodman. In Arm's case, with a near-100 per cent market share of smartphone application processors, it would be almost unaffected by the ruling. Assuming customers purchase alternative phones, Arm will still benefit," says Mr Goodman. Chipmakers are notoriously coy about discussing their customers, and Arm, CSR, Wolfson and Imagination Technologies all declined to comment. However, a bigger issue that could unfold following an acceleration of patent infringement rulings is increased industry consolidation, according to Peel Hunt's Ms Jarvis. The industry is already consolidating. Apple and Samsung are already taking control of more of the value chain - content, services, chip design, as well as device design," says Ms Jarvis. The intellectual property case may raise the financial risks for smaller players or leave them struggling to differentiate and therefore compete on anything but price, leading to more technology acquisitions by Apple and Samsung. "If Imagination is selling primarily to Apple, then why wouldn't Apple acquire Imagination if it deems that it has the best graphics out there?" she says. While Mr Lambe suggests that Wolfson is the more likely target. "If I were to look at which UK tech company that would be acquired, Wolfson is the one that would stand out," he says.