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Behind Apple's record sales are signs of desperation

Hailstorm of lawsuits hints at vulnerability

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One of the signal processing patents involved in the HTC suit is also cited in a complaint against Nokia, and this was spun off from the wider ITC suit against the Finns, which should be decided by 24 June. Nokia lawyer Pat Flinn, of Alston & Bird, accused Apple of "dredging up patents" when it was approached for royalties by mobile pioneers like Ericsson and Nokia itself, according to Bloomberg. "Advances in technology have made the patent moot," Flinn said of the signal processing IPR.

HTC and Nokia have their own countersuits against Apple and Nokia has also sued over fundamental wireless patents for which it claims the iPhone maker does not pay royalties, even though most of the handset industry does. HTC's counterclaims will be heard from 9 May.

The importance of patents

Legal ups and downs generally end up having limited impact on actual product sales, but patents are increasingly vital to building a power base in the mobile market. This is something Google understands, and has prompted it to become the stalking horse bidder for Nortel's huge IPR portfolio.

Here, it was expected to come up against Apple too, but in fact RIM may emerge as the counter-bidder. It is reported to be preparing a rival bid for Nortel's huge store of patents. The BlackBerry maker was said to be interested in the assets when Nortel was first being broken up in the bankruptcy court, and could see the patents both as a new revenue stream and a way to increase its fighting power against Android and Apple. Under the rules of the court, a second bidder would have to offer Nortel at least $929m and subsequent bids would have to be at least $5m more.

Google clearly needs to strengthen its relatively weak IPR power, compared to that of key rivals and litigants, such as Apple, Microsoft and Nokia. Therefore it is likely to raise its price in order to secure the patents and could easily outrun RIM. The Canadian firm may, though, bid as part of a group, which according to Bloomberg's unnamed sources could contain other technology vendors and even other handset makers.

Ownership of patents is vital to being a real power player in wireless, where licensing of IPR still relies primarily on bilateral tit-for-tat agreements rather than pools or the "reasonable and non-discriminatory" principles of other standards. Even firms that rarely go to court aggressively over their patents, like Microsoft, know that their IPR mountains protect them – and their handset partners – from many lawsuits.

RIM could gain backing from other firms which have an interest in limiting the power of Google over the mobile industry. The patents collection represents one of the largest ever to come to market as a single portfolio and covers many key technology areas, especially those used in LTE, such as MIMO.

Google just starting in mobile

A relatively small IPR position is only one of the signs that Google is a newcomer to the mobile game, but that makes it all the more worrying for Apple; it still has a lot of growth to achieve, while Apple may be peaking already. At its results announcement, Google talked up its huge mobile potential even as it delivered first quarter results that disappointed because of the firm's galloping costs. CFO Patrick Pichette said the company "tripped" into a $1bn mobile business without massive effort, leaving the audience to imagine what could be achieved once Google really started to try. Jeff Huber - SVP of commercial and local services under Google's recently announced new management structure – said mobile search had increased by more than 500 per cent in the past two years, while 350,000 Android devices were being activated a day. More than three billion Android Market apps have been installed to date.

For the first quarter, Google saw earnings up 17 per cent year-on-year to $2.3bn but its shares dropped by 5 per cent, because costs grew more quickly than revenues. The latter were up 27 per cent to $8.6bn, with paid-for clicks on adverts a key driver. Operating expenses were a third of revenue, the highest proportion since 2007, and some investors are concerned at the trend, since Google plans to add a further 6,200 staff to its 23,300-strong workforce this year, the highest number in its history. Many will be focused on expansion areas like mobility, with new CEO Larry Page putting emerging technologies at the heart of his strategy. The co-founder took over the top job this month from Eric Schmidt, who stays on as chairman.

Pichette justified these rising expenses, saying: "It's clear that our past investments have been crucial to our success today - which is why we continue to invest for the long term ... We just happen to have great opportunities to fuel. Why not carpe diem now? It's there to take."

He hastened to add that Google was committed to financial discipline and all investments were regularly reviewed against productivity measures. As of 31 March, the firm had cash reserves of $36.7bn and it is expected to make further acquisitions in the key areas of mobility and social networking this year.

The next fight will be in the cloud

All this could leave Apple in a weakened position, especially if it does not move more aggressively to embrace the cloud/browser trend, which may eventually start to eclipse the apps business where it succeeds so well. Apple has made only halfhearted moves in this direction, and has been outsmarted by firms like Amazon so far. We remain unconvinced of the chances for the new breed of cloud-focused operating systems – webOS, Chrome OS, Microsoft Jupiter and MeeGo – but they do indicate where the tide of mobile web behavior is flowing, and Apple is notably absent.

Hewlett-Packard, for instance, is pushing webOS as a full cloud platform, providing a low power, browser-based system that can run in every imaginable connected gadget and, where required, coexist with full OSs like Windows. And HP is now reported to be preparing a music and movie store for its upcoming TouchPad webOS tablet, with a heavy emphasis on streaming and cloud storage. HP is likely to focus on multiscreen content rather than mobile-specific items. This is in line with its webOS strategy, which looks to run the system in all kinds of devices. HP's store will support a mixture of downloaded and cloud content, according to a presentation leaked to the PreCentral site for Palm enthusiasts.

As HP and Amazon leap ahead with such platforms, Apple is left in the unusual position, when it comes to content and user experience, of being behind the curve. It may call the iPad a "post-PC" product, but it still depends on a PC or Mac to sync information. iOS devices need a PC link to update the OS, move content, back-up and restore, and activate the gadgets. Only Apple TV 2 provides a fully streamed, self-activating platform. That may point to changes that will also reach the iPhone and iPad, along with streamed content and web services for iTunes and App Store. But Apple is moving too slowly, and all the lawsuits in the world will not make up for a misstep when it comes to jumping on the mobile cloud bandwagon.

Copyright © 2011, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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