Traders work on the floor at the New York Stock Exchange, April 23, 2013. — Reuters Photo

NEW YORK – For a few surreal minutes, a mere 12 words on Twitter caused the world’s mightiest stock market to tremble.

No sooner did hackers send a false Associated Press tweet reporting explosions at the White House on Tuesday than investors started dumping stocks – eventually unloading $134 billion worth.

Except most of the investors weren’t human. They were computers, selling on autopilot beyond the control of humans, like a scene from a sci-fi horror film.

“Before you could blink, it was over,” said Joe Saluzzi, co-founder of Themis Trading and an outspoken critic of high-speed computerized trading. “With people, you wouldn’t have this type of reaction.”

For decades, computers have been sorting through data and news to help investment funds decide whether to buy or sell. But that’s old school. Now “algorithmic” trading programs sift through data, news, even tweets, and execute trades by themselves in fractions of a second, without slowpoke humans getting in the way. More than half of stock trading every day is done this way.

Markets quickly recovered after Tuesday’s plunge. But the incident rattled traders and highlighted the danger of handing control to the machines. It also raised questions about whether regulators should be doing more to monitor the relationship between social media and the markets.

Irene Aldridge, a consultant to hedge funds on algorithmic programs, said many of the trading systems just count the number of positive and negative words, without any filter. She wants regulators to do more but believes that glitches and plunges may be inevitable.

“You can’t ban Twitter,” said Aldridge, author of “High-Frequency Trading,” a guide to algorithmic trading.

Just how exactly the trading unfolded Tuesday is still a bit of a mystery.

Some experts say the computers took their cue from humans, picking up on a pause in buying as traders read the phony tweet. In Wall Street’s insanely fast trading world, humans holding back for even a second could have signaled to computers that buyers were drying up and that prices could fall, and so the computers should sell fast.

Others, like Saluzzi, think computers may have sold on the tweet itself. That’s possible because computer trading programs are increasingly written to read, and react to, news from social media outlets like Twitter.

Experts say the fake tweet seemed designed to catch a computer’s attention.

Rich Brown, head of Elektron Analytics, a Thomson-Reuters unit that sells news feeds that computers can read, said that the words “explosions” or “Obama” alone wouldn’t have triggered selling. But add “White House,” and it’s a combination even the slowest computer couldn’t miss.

Brown said his service doesn’t include Twitter in its feeds because there’s too much useless “noise” in the deluge of tweets and, given the 140-character limit to tweets, often too little context.

Before the fake tweet appeared on Tuesday, it looked like any other good day on Wall Street. Unexpectedly strong earnings reports sent stocks in the Dow Jones industrial average up 1 percent to 14,697 with three hours to go in the trading day.

Then, at 1:08 p.m. EDT, a tweet appeared on the hacked AP Twitter account stating that two explosions at the White House had injured President Barack Obama. Stocks immediately started falling and tumbled for two minutes.

The Dow dropped from 14,697 to 14,554, losing 143 points, or 1 percent. In the frenzied selling, oil prices dropped, gold rose, the dollar rallied and the price of Treasury notes, seen by many investors as a hiding spot, shot higher, briefly knocking yields to their lowest level of the year.

The AP quickly announced that its account had been hijacked and the report was false. The Dow began to climb again, recovering all its losses by 1:18 p.m. That was 10 minutes after the fake tweet, according to FactSet, a financial data provider.

A group called the Syrian Electronic Army said it was responsible for the hack. But the claim has not been corroborated. The FBI and the Securities and Exchange Commission said they had opened investigations into the incident.

Some Wall Street pros were surprised that a single tweet could move markets so much.

Julian Brigden, managing partner of Macro Intelligence 2 Partners, an investment consultancy, said the drop suggested an “unstable” trading environment dominated by investors too quick to buy or sell without any thought.

“To me, it’s indicative of a very dangerous market,” he said.

Though stocks eventually recovered for the day, investors have been on edge recently.

“People are looking for a reason to sell, and (Tuesday) it was a fake tweet,” said Adam Sussman, head of research at Tabb Group, a research firm. “Of course, once they realized it was fake, they bought back in, or they stopped selling.”

But he thinks humans played only a minor role in the stock plunge. He said most professional investors are too savvy to sell on a tweet.

“They’d get a tweet from AP and then say, `Oh, was there a corroborating tweet from Bloomberg? A corroborating tweet from Thomson Reuters?’ and so forth,” he said. “So I don’t believe that anyone selling substantial money saw that tweet and just began selling off billions of dollars.”

Joe Fox, founder of online brokerage Ditto Trade, said the selling was too fast for humans to have pulled off, and computers were to blame.

“Whoever this jerk (who wrote the tweet) is probably cost some people millions of dollars in a matter of minutes,” he said.

Computer programs have come to dominate stock-market trading over the past 20 years. The goal is speed, and it’s led to an arms race as companies develop ever-faster programs. High-speed trading came under public scrutiny following the “flash crash” of May 6, 2010, when a glitch erased 600 points from the Dow in five minutes.

One of the latest weapons in the arms race is machine-readable news. The Thomson Reuters service, one of the more popular offerings, scans 50,000 news sources and 4 million social media sites for stories.

Brown says his programs take news articles and announcements and automatically flag answers to the essential questions – who, what, where, when and why. The answers are translated into a code that an investment firm’s trading program can understand and then sent to clients. All of that takes less than one-thousandth of a second.

It’s up to the investment fund to place a value on each word and rank established news outlets over other sources like blogs or social media websites, Brown said.

Tapping into the stream of comments on Twitter has become increasingly popular. Earlier this month, the SEC cleared companies to release key announcements on Twitter, Facebook and other social-media venues. Bloomberg also added Twitter to its terminals, a fixture on every big bank’s trading floor.

Regulators have been studying the problems posed by automatic computer trading for years. Last month, the SEC proposed tighter oversight of automatic trading. Stock exchanges would be required to test their trading systems routinely, and report to the SEC about problems that could damage trading, like hacking.

“The exchanges love speed,” said Bart Chilton, a member of the Commodity Futures Trading Commission, a regulator that has been reviewing high-speed programs. “I’m not so sure that fast is always better.”

In this Tuesday, Oct. 23, 2012, photo Apple CEO Tim Cook speaks during an event to announce new products in San Jose, Calif. —AP (File Photo)

Fri Mar 8, 2013 - Apple Inc CEO Tim Cook could be deposed in the government’s lawsuit against the company over alleged price-setting in the e-book market.

In a one-page order, US District Judge Denise Cote on Friday said she will hold a telephone conference on March 13 to consider the government’s request for Cook’s testimony.

Apple is the sole remaining defendant in the lawsuit brought against the iPhone maker and five other publishers last April for allegedly conspiring to raise prices of e-books to challenge the dominance of Amazon.com Inc.

All of the accused publishers, including Pearson Plc’s Penguin Group, News Corp’s HarperCollins Publishers Inc and CBS Corp-owned Simon & Schuster Inc, have already settled with Justice Department in the course of the last year.

The order follows a March 6 request by the government for Cook’s testimony.

At the Apple trial, to be overseen by Cote in Manhattan, the Justice Department is not seeking monetary damages but a judicial decree that Apple violated antitrust law, court papers show.

Among other things, government lawyers want the judge to issue an order enjoining Apple from engaging in any conduct similar to that alleged in the case.

An Apple spokesman declined to comment.

The case is United States v. Apple Inc et al, US District Court, Southern District of New York, No. 12-02826.

A neon Google logo is seen at the new Google office in Toronto, November 13, 2012. — Reuters Photo

SHANGHAI, Tue Mar 5, 2013 - Google Inc has too much control over China’s smartphone industry via its Android mobile operating system and has discriminated against some local firms, the technology ministry said in a white paper.

The white paper, authored by the research arm of China’s Ministry of Industry and Information Technology, also said China had the ability to create its own mobile operating system.

“Our country’s mobile operating system research and development is too dependent on Android,” the paper, posted online on Friday but carried by local media on Tuesday, said.

“While the Android system is open source, the core technology and technology roadmap is strictly controlled by Google.”

The paper said Google had discriminated against some Chinese companies developing their operating systems by delaying the sharing of codes. Google had also used commercial agreements to restrain the business development of mobile devices of these companies, it added.

A Google spokesman in China declined to comment.

The ministry did not recommend any specific policies, regulatory actions or other measures.

Analysts said the white paper, which lauded Chinese companies such as Baidu Inc, Alibaba Group and Huawei Technologies for creating their own systems, could be a signal to the industry that regulations against Android are on the horizon.

“In China, regulators regulate regularly especially where they can position the regulations as helping out domestic companies,” Duncan Clark, chairman of technology consultancy BDA, said in an email to Reuters.

“Ironically, Android’s success has underpinned a lot of the growth in China smartphone vendors in recent years,” Clark said. Home-grown companies had failed previously in China’s market for simple handsets, he said, due to weakness in software and operating systems.

South Korea’s Samsung Electronics Co Ltd, the world’s largest smartphone maker, uses the Android system, as do Chinese manufacturers Huawei and ZTE Corp.

Last September, the launch of a smartphone between Acer Inc and a unit of Alibaba Group was cancelled due to what Alibaba said was pressure from Google on the Taiwanese group. Representatives for Acer and Google declined to comment on the matter at that time.

Technology research firm IDC has estimated that China surpassed the United States as the world’s biggest smartphone market in 2012, accounting for 26.5 percent of all smartphones shipped.

In 2010, Google conducted a partial pullout from China on the basis of censorship and after it suffered a serious hacking episode that the company said emanated from China. Since then, Google’s search market share in China has fallen from almost 30 percent to 15 percent at the end of 2012. Android has been Google’s bright spot in China.

In the third quarter last year, Android accounted for 90 percent of all mobile operating systems in China while Apple Inc’s iOS system was at just 4.2 percent.

In this Tuesday, Oct. 23, 2012, photo Apple CEO Tim Cook speaks during an event to announce new products in San Jose, Calif. Apple CEO Tim Cook sought to assure shareholders Wednesday, Feb. 26, 2013, that the company is working on some “great stuff” that may help reverse a sharp decline in its stock price. — AP (File Photo)

CUPERTINO, California - Apple CEO Tim Cook sought to reassure shareholders worried about the company’s sagging stock price that the iPhone and iPad maker is on the verge of inventing more breakthrough products that will prove it hasn’t lost its creative edge.         

”The company is working as hard as ever, and we have some great stuff coming,” Cook told shareholders Wednesday before taking their questions during Apple’s annual meeting at its Cupertino, California, headquarters.

True to Apple’s secretive nature, Cook didn’t provide any further product details, although at one point he said the company is considering entering other categories besides its popular line of digital music players, smartphones and tablet computers.

There has been speculation that Apple is working on an Internet-connected watch or TV that will be introduced later this year. One shareholder at Wednesday’s meeting threw a new idea for Apple to ponder – a computerized bicycle. Cook, an avid bicyclist, chuckled at the suggestion, along with the rest of the audience.

Although there were more moments of levity, Wednesday’s meeting was less celebratory than the events in past years, when Apple’s stock price was soaring to the delight and enrichment of its shareholders. Since hitting an all-time high of $705.07 five months ago, Apple’s stock has plunged by 37 percent. The decline has wiped out collective shareholder wealth totaling $240 billion.

That amount exceeds the total market value of Microsoft Corp., which reigned as the most influential company in personal computing until Apple ushered in an era of mobile devices with the 2007 release of the iPhone and the 2010 introduction of the iPad.

Cook, who became CEO shortly before Apple co-founder Steve Jobs died in October 2011, has a huge incentive to get the company’s stock price strong again. The 1.1 million Apple shares he owns are worth about $300 million less than they were five months ago.

”I don’t like it, either,” Cook said of the downturn in Apple’s stock.

Apple Inc. hasn’t unveiled another trailblazing product since Cook took over, raising concerns about whether the company is losing the ingenuity that has set it apart from the rest of the technology pack. Cook told shareholders the company’s commitment to innovation remains Apple’s ”North Star” and ”the beat of its heart.”

His pep talk evidently didn’t inspire many investors. Apple’s stock shed another $4.40 to close Wednesday at $444.57.

Shareholders still affirmed their confidence in Cook at the meeting. Preliminary results showed Cook was re-elected to Apple’s eight-member board of directors with 99 percent of the vote.

Wall Street may have been disappointed that Cook didn’t provide any further clarity on whether Apple might distribute some of its $137 billion in cash to shareholders in the form of a dividend increase or a special one-time payment.

Apple shareholder David Einhorn, who runs the Greenlight Capital hedge fund, turned Apple’s cash hoard into a hot topic in the weeks leading up the meeting.

He sued to block a proposal that would have required shareholder approval for Apple to issue preferred stock. Einhorn argued that if approved, it would create a bureaucratic hurdle that could make it more cumbersome to return cash to shareholders.

He wants Apple to issue preferred shares called ”iPrefs” that would yield an annual dividend of 4 percent.

A potential showdown was averted last week when a federal judge ruled that Apple had improperly bundled several corporate governance issues, including the handling of preferred stock, in the same proposal.

Apple withdrew the proposal from Wednesday’s agenda, to the chagrin of two shareholders who said they would have voted for it. Supporters of the measure included the California Public Employee Retirement System, or CalPERS, which urged Cook to do what’s best for Apple’s long-term interests.

”I would say the message is, ‘Keep calm and carry on,”’ said Anne Simpson, who oversees corporate governance for CalPERS.  Einhorn, whose fund owns 1.3 million Apple shares, didn’t appear at Wednesday’s meeting.

In response to a question Wednesday, Cook said Einhorn’s resistance to a shareholder vote on preferred stock remains ”a silly sideshow, regardless of how a judge ruled on it.” Cook remarks echoed the derisive description he used during an appearance at an investor conference earlier this month.

Cook also sounded a familiar refrain when he discussed Apple’s pile of cash. ”This is a serious subject, and one we deliberate on as a board and a management team. We are in very, very active discussions on it,” Cook said.

Not long after Cook made similar remarks at last year’s annual meeting, Apple announced plans to start paying a quarterly dividend of $2.65 per share and to spend $10 billion buying back its stock in the fiscal year that began last October.

Even though the dividend commitment costs Apple $10 billion annually, the company now has $39 billion more cash than it did year ago.

David Einhorn, President of Greenlight Capital, speaks at the 6th Annual New York Value Investing Congress in New York City in this file photo from October 13, 2010. Einhorn, who is battling Apple Inc in court as part of a wider effort to get the iPhone-maker to share more of its cash pile, hosted a conference call February 21, 2013 to argue the merits of distributing perpetual preferred stock. – Reuters Photo

NEW YORK, Sat Feb 23, 2013 - A US judge handed outspoken hedge fund manager David Einhorn a victory in his battle with Apple Inc on Friday, blocking the iPhone maker from moving forward with a shareholder vote on a controversial proposal to limit the company’s ability to issue preferred stock.

US District Judge Richard Sullivan in Manhattan granted a motion by Einhorn’s Greenlight Capital for a preliminary injunction stopping a vote on that proposal, scheduled for the company’s February 27 stockholders’ meeting.

The decision could hand Einhorn more leverage as he pursues his pitch for Apple to issue what he has called the “iPref”: preferred stock with a perpetual dividend that he contends would reward investors and help boost the company’s share price.

Greenlight sued Apple on February 7 as part of a broader pitch to unlock more of its $137 billion in cash. The hedge fund manager has lobbied Apple to issue preferred stock with a perpetual 4 percent dividend, and on Thursday made a direct appeal to shareholders on a teleconference.

Apple Chief Executive Tim Cook last week dismissed the lawsuit as a “silly sideshow.”

The lawsuit itself challenged a measure called Proposal No. 2 that Apple put forward, which would eliminate its power to issue preferred shares without a shareholder vote.

At issue is Apple’s “bundling” of that measure with two other unrelated matters into a single proxy proposal.

Greenlight said it supported two of the proposed amendments, but not the one on preferred shares.

In his ruling, Sullivan said Greenlight and another investor who also sued Apple “are likely to succeed on the merits and face irreparable harm if the vote on Proposal No. 2 is permitted to proceed.”

“We are disappointed with the court’s ruling. Proposal No. 2 is part of our efforts to further enhance corporate governance and serve our shareholders’ best interests,” Apple spokesman Steve Dowling said. “Unfortunately, due to today’s decision, shareholders will not be able to vote on Proposal No. 2 at our annual meeting next week.”

A spokesman for Greenlight called the ruling a “significant win for all Apple shareholders and for good corporate governance.”

But not all shareholders were happy. California pension fund Calpers, a major Apple investor and public supporter of Apple’s proposal, said implementation of “majority voting and shareholder approval for the issuance of new stock – preferred or otherwise – is worth waiting for.”

“We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard,” Anne Simpson, Calpers’ director of global governance, said in a statement.

BUNDLES

The ruling could be a warning for other companies when issuing proxy proposals, said James Cox, a professor at Duke University School of Law.

“It’s going to make managers reluctant to bundle things together, because you’re never going to know when you send them out if there’s an Einhorn out there,” he said.

The lawsuit was centered on a narrow issue of whether Apple violated US Securities and Exchange Commission rules by “bundling” the preferred shares item with two other unrelated matters into one proxy proposal.

Greenlight’s lawyers contended the SEC rules were intended to protect shareholders from being forced to vote for a proxy proposal involving materially different issues that the investors might not entirely support.

Apple had argued Proposal No. 2, which only dealt with amendments to its charter, constitute a single matter and wasn’t bundled. Sullivan called the company’s arguments “unavailing.”

“Given the language and purpose of the rules, it is plain to the Court that Proposal No. 2 impermissibly bundles ‘separate matters’ for shareholder consideration,” Sullivan wrote.

Judge Sullivan also found that Greenlight would be irreparably harmed without the injunction, since it would be forced to vote against its own interests. Denying Greenlight’s motion would prevent it and other investors from exercising their rights to a fair vote, Sullivan said.

Sullivan separately declined to block a vote from going forward on a separate proxy proposal, Proposal No. 4, which sought an advisory “say on pay” vote on Apple executives’ compensation.

The proposal had been challenged by investor Brian Gralnick of Pennsylvania, who contends Apple did not disclose enough details about how it made its compensation decisions.

Sullivan rejected that argument, saying Apple’s disclosures were “plainly sufficient under SEC rules.”

Arnold Gershon, a lawyer for Gralnick at Barrack, Rodos & Bacine, said he was “very pleased” with Sullivan’s decision to the extent it enjoined the Proposal No. 2 vote, though said he would have to decide what to do next with regard to the say-on-pay proposal.

Sullivan directed the parties to submit a joint letter by March 1 outlining the next contemplated steps in this case.

Apple shares closed up 1.1 percent at $450.81 on Friday.

The case is Greenlight Capital LP, et al., v. Apple Inc., US District Court, Southern District of New York, 13-900.

The Apple logo is seen in this September 11, 2012 file photo at the Yerba Buena Center for Arts in San Francisco. Apple shares plunged at the open January 24, 2013 as markets reacted to a disappointing outlook from the US tech giant despite its record quarterly profits. The shares, which had topped $700 last year, slid 11.3 percent to $455.56 as markets opened, before trading in the shares was suspended due to the sharp decline. AFP Photo

NEW YORK, Jan 25, 2013 - Apple shares extended their losses Friday, as the California tech giant lost its position as the world’s biggest company based on market value.

In midday trade on Wall Street, Apple shares were down 2.37 percent at $439.82, giving it a market capitalization of $412 billion. Oil giant ExxonMobil meanwhile rose 0.26 percent to $91.60 with a market cap of $417 billion.

In August 2011, Apple first overtook ExxonMobil as the most valuable company in the world based on the value of its stock.

A year later, Apple dethroned longtime rival Microsoft as the most valuable company in history based on the value of its stock at $622 billion.

Apple took a bruising this week after a gloomy forecast accompanying its record quarterly profits prompted pessimism over the tech giant’s slowing growth trajectory.

Apple on Wednesday announced a profit of $13.1 billion on revenue of $54.5 billion in the fiscal quarter that ended on December 29, with sales of iPhones and iPads setting quarterly highs.

But despite those figures, investors soured on Apple after it forecast that revenue for the current quarter would range from $41-43 billion and that it would have a gross margin of 37.5 to 39.5 percent.

Apple CEO Tim Cook speaks during Apple’s special event at the California Theatre in San Jose on October 23, 2012 in California. AFP Photo

SHANGHAI, Jan 11, 2013 - Apple Chief Executive Tim Cook, on his second visit to China in a year, said he expects the country to surpass the United States as the technology giant’s largest market, state media reported.

Cook said Apple would launch new products in China, but declined to comment on reports the company is planning a cheaper iPhone for emerging markets like China, the official Xinhua News agency reported late Thursday.

“China is currently our second largest market. I believe it will become our first. I believe strongly that it will,” Cook told Xinhua in an interview.

Apple said it sold over two million iPhone 5 handsets in China within three days of its launch on December 14 last year.

Products of the California-based company, including the iPhone and iPad, are wildly popular in China where they are coveted by wealthy consumers.

Coming out with a more affordable iPhone in China and other markets could help Apple ward off competition from bargain-priced smartphones powered by Google-backed Android software.

A separate report carried by the news portal of Internet giant Sina quoted Cook as saying Apple planned to have more than 25 retail stores in China.

The company currently has 11 such stores in mainland China and Hong Kong. The Sina report gave no timeframe for the store openings.

Technology analysts say Apple has appeared slow to open more stores in China given the demand for its products.

Apple did not immediately respond to a request for comment on Cook’s visit.

On Cook’s previous visit to China last March, the man tipped to be China’s next premier, Li Keqiang, told him that foreign firms should protect workers as Apple faced criticism over factory conditions in China.

Speaking on the latest visit, where he met Chinese company executives in Beijing, Cook said Apple has strict codes of conduct for its suppliers manufacturing in China, which include Foxconn of Taiwan, Xinhua reported.

He said Apple would not do business with vendors who failed to follow the company’s code of conduct, the report said.

Apple plans to bring some manufacturing of its computers from China to the United States this year, Cook said last month.

Phil Schiller, senior vice president of worldwide marketing at Apple Inc., introduces the iPhone 5 during Apple Inc.’s iPhone media event in San Francisco, California September 12, 2012. Reuters Photo

SAN FRANCISCO, Thu Jan 10, 2013 - Apple Inc will not resort to a cheaper iPhone to expand its market share, marketing chief Phil Schiller told a Chinese newspaper in an interview when asked about speculation the company is developing a less expensive version of its popular smartphone.

Schiller pointed out that though Apple commanded just 20 percent of the smartphone market, it had 75 percent of the profit, according to an interview he gave the Shanghai Evening News.

The Shanghai Evening News, paraphrasing Schiller’s comments, cited the Apple executive as saying the company will not develop a cheap smartphone for the sake of expanding its market share.

Apple confirmed the interview had taken place, but had no further comment for now.

“Originally, many in the Chinese market used feature phones (regular wireless phones). But now a few companies are starting to use cheap smartphones to take the place of feature phones,” Schiller was cited as saying in his first interview with a Chinese newspaper.

“But this is not a direction that we want to be heading in with our products,” he was quoted as saying in the Chinese-language report.

Apple rarely addresses rumors about upcoming products, which often invite intense speculation. This week, the Wall Street Journal cited anonymous sources as saying Apple could release a cheaper iPhone as early as this year.

China is Apple’s second-largest market and an area of intense focus for the iPad maker as it tries to sustain a rip-roaring pace of growth.

Chief Executive Tim Cook flew to China this week for at least the second time in 12 months, meeting partners and government officials. On Thursday, he called on the chairman of the country’s largest wireless carrier, China Mobile, raising hopes that a long-awaited deal between the two can proceed.

In an interview with the official Xinhua News Agency, Cook said he was confident China will someday become the company’s single largest market.

A neon Google logo is seen as employees work at the new Google office in Toronto, November 13, 2012.  - Reuters Photo

TAIPEI, Jan 4, 2013 - The Taipei city government said Friday it will appeal a court ruling which revoked a fine it imposed on the US Internet giant Google in a dispute over its mobile phone apps.

The city government in 2011 fined Google Tw$1 million ($34,000) for refusing to grant customers a seven-day trial period on its mobile phone apps, in accordance with Taiwan’s consumer protection law.

The decision was upheld when Google appealed to the economics ministry last year but the Taipei High Administrative Court last week decided to revoke it, saying the city government should not interfere in a dispute between a firm and consumers.

“We do not wish to see Google exit the Taiwan market but we urge Google to respect and protect consumers’ rights. We will appeal the court ruling,” said an official at the government’s consumer protection division.

The capital city’s government in 2011 said that Google and Apple had violated the law and ordered them to amend their trading rules. Apple later complied with the law while Google refused, it said.

Under the terms of service for Google’s Android Market, consumers are entitled to a refund only within 15 minutes of purchasing a product online.

Google has suspended the sale of its paid apps in Taiwan since the dispute.

A passerby photographs an Apple store logo with his Samsung Galaxy phone on the morning iPhone 5 goes on sale to the public in central Sydney September 21, 2012. – Reuters Photo

JAKARTA/SEOUL | Fri Dec 7, 2012 - What a difference three months can make.

At the end of August, Apple Inc seemed on top of the world. Fresh off a resounding $1.05 billion U.S. legal victory over arch-foe Samsung Electronics Co Ltd, the company was gearing up to launch the fifth iteration of its iconic iPhone. Just a week prior, its market value had surpassed Microsoft Corp’s and it became the most valuable technology company in history.

That was then. Since winning a landmark U.S. patent infringement case in August, its stock has dived 18 percent, wiping $108 billion from its value. But the shares of defeated party Samsung have surged, rising 16 percent.

The dramatic reversal has sparked raging market speculation. Some pundits say concerns are growing about the seemingly inexorable advance of Google Inc’s Android, the rival software championed by Samsung. Others say fears about higher capital gains taxes have prompted investors made rich by Apple’s stock-price growth to sell.

But it is the Apple-Samsung rivalry that defines a global mobile device industry with a growing list of struggling players. Together, the two mobile juggernauts account for more than 1 in 2 smartphones sold globally.

Analysts say Samsung is beginning to shed its aura as a “fast follower” and becoming a serious innovator, while Apple has failed to deliver on a truly seminal product in years – the oft-rumored Apple TV remains a well-honed rumor.

“Apple’s actions have started to appear as if innovation is slowing and they’re defending turf with a zero-sum market view rather than continuing to innovate as a world-beating leader,” said Tony Nash, managing director at IHS, a business information provider.

The clash of the gadget titans underscores a broader battle between Apple and Google’s increasingly popular Android mobile software, now installed on about two out of every three smartphones sold.

But some Asian analysts also point to Samsung’s very different business model as helping it get a leg up on Apple.

The iPad maker’s outsourcing structure provides fatter margins, but cedes some control to an army of suppliers, while Samsung’s competitiveness is driven by keeping most of its manufacturing in-house.

And while Apple focuses on a few high-end mobile devices, Samsung’s product breadth helps it scoop up new, less affluent users who can then be driven towards higher-margin devices, such as the phone-tablet combo Galaxy Note.

“In Asia, Samsung is still in the stronger growth position when it comes to smartphones – bringing large-screen models to the masses, re-introducing the pen with its Galaxy Note series and also, at the lower-end, with its entry-level Galaxy Y devices driving emerging markets like Indonesia and India,” said Melissa Chau, Singapore-based research manager at IDC.

SAMSUNG SHIFT

No one is writing off Apple, still the world’s most valuable listed company and expected to chalk up 27 percent revenue growth to almost $200 billion in fiscal 2013 – about level with Samsung.

“There have certainly been missteps at Apple … but if we look at what’s been achieved in the year since (co-founder Steve) Job’s death, there are things that keep their competitors quaking in their boots,” said Rachel Lashford, Managing Director, Mobile and APAC, at consultancy Canalys in Singapore.

Among its strengths, she cited unprecedented demand around new launches, the expansion of content on iTunes and the Apps Store, a possible move to product updates twice a year, efforts to improve parts supply and manufacturing, the dogged legal pursuit of Samsung and cash reserves of more than $120 billion.

Its gross margins of above 40 percent are double Samsung’s.

But the South Korean company is now beginning to generate some buzz with recent improvements in its line-up. This week, news emerged that it is likely accelerating the launch of its next-generation flagship Galaxy smartphone – which sports an unbreakable screen.

Codenamed “Project J,” the Galaxy S IV could be released as early as March or April, according to leading industry analysts and tech blogs. With smartphones increasingly looking alike, an unbreakable screen could be a big selling point for the Galaxy over the iPhone.

“Samsung’s richer product line-up and vertically integrated supply structure are among its strongest advantages over Apple’s simpler product range and strength in software,” said Kim Young-chan, an analyst at Shinhan Investment Corp in Seoul.

Samsung is estimated to have shipped close to 56 million smartphones in July-September, more than double the number of iPhones, and analysts expect it to sell around 30 million more smartphones than Apple this quarter.

The South Korean firm’s shift comes as its Cupertino, California-based rival suffered from some missteps in its iPhone 5 mapping app, supply constraints that have prompted delivery delays and allegations of employee abuse at supplier plants in China.

Charles Moon, Singapore-based principal analyst at Informa Telecoms & Media, a research consultancy, sees these as a sign Apple is adjusting to maturing markets.

“A completely offensive strategy with uncontested gains are a thing of the past,” he said. “Apple is not positioned well at the moment following a couple of disappointing quarters and continued negative news flow.

“Regardless of what happens (in the court ruling), Samsung and Android are winning where it counts – outside the courtroom – and this is likely to go on unless Apple can continue to reinvent itself. Very difficult, considering how far they’ve come, but not impossible. They’ve done it before,” he added.

APPLE MISSTEPS

In the key battleground of China - the world’s No. 1 cellphone market – Samsung and Android devices in general appear to be making headway against pricier Apple gadgets.

Third-quarter data shows Apple slid to sixth place in China, its largest market after the United States. Samsung kept top slot, according to research firm IDC, which estimated the Chinese smartphone market at a record of more than 60 million in July-September.

IDC analysts forecast a rebound for Apple with this month’s iPhone 5 launch there, but it has so far failed to crack the country’s largest carrier by far, China Mobile Ltd.

Apple’s “loss of market share and of opportunities like a stalled China Mobile agreement are notable and, potentially, show some strengths of an integrated hardware-led model of players like Samsung against the comprehensive hardware-software ecosystem model of Apple,” said Nash at IHS.

“This competition is far from over and my hope is that it forces very strong and continued innovation from Apple, Samsung and others.”