$Apple(AAPL)$
The latest Apple Watch 9 and Ultra 2 were announced 12 Sept 2023, where pre-orders were immediately opened, and subsequently, shipment started 10 days later from 22 Sept onwards.
A month later, the US ITC (International Trade Commission) had ruled in favour of Masimo (a multi-national specializing in medical technology, not to be confused with Massimo, a brand of bread sold in Malaysia) with regards to its patent violations claims. Specifically, the Signal Extraction Technology (SET) pulse oximetry technology and measurement method of SpO2 (Saturation of Peripheral Oxygen or blood oxygen saturation) readings. This allows for accurate readings in mobile subjects with less false alarms. Meaning, you don't have to sit still to get an accurate reading - perfect for real-time application when paired into a smart watch. This feature had been used in Apple's watches since the Apple Watch 6 in 2020, so the ITC sure took its time in arriving at a decision....
The ITC import ban will actually come into effect on 26 Dec, but Apple had decided to act early and pull the products from the shelves from 24 Dec. Without going deeper into this, it's more of a software / data processing issue so, not very straight-forward to just compare the hardware and decide if there is a clear-cut patent violation.
Back to our topic, where do I think Apple stocks will go after Christmas? In short summary, I think this should not have much impact on Apple overall. If we look at the share prices over the last 6 months (thanks to Yahoo Finance), I map out 2 different events where Apple had made new product announcements. Firstly, in early Sept 2023, along with the Apple Watch / Ultra, the iPhone 15 series and AirPods Pro 2 were also announced. Following this, it does not appear to have any positive impact - in fact share prices dipped and rose later in typical fashion. When Apple announced their new Apple Pencil, iMac and MacBook Pros at end Oct during their "Scary Fast" 🎃 keynote event, shares were actually significantly lower versus end Sept. However, possibly due to the Q4 Financial result announcement, share prices from there have gone up nearly 20% till mid Dec 2023....
In any case, for FY2223, Wearables, Home and Accessories only make up just ~10% of Apple's total net sales, compared to 52% due to iPhones. The 10% is for global, as I'm not able to find the breakdown by region. As I understand, non-US sales are still allowed, so the actual impact of the US ITC import ban could be much lower, due to high international sales especially from countries like China. Lastly, it could be possible that the White House could veto the ruling and overturn the verdict in Apple's favour. This has actually happened once before in 2013, when US President Barack Obama overruled the ITC for Samsung vs Apple (related to the iPhone 4 and iPad 1/ 2), in the interest of "promoting innovation and economic progress". Unlikely, but perhaps Joe Biden may throw down the trump card? 🫣
Counterpoint - the Financial results do not seem to reflect the share price movement. In early Aug, Financial results for Q3 FY2223 were announced. Revenue -1% YoY but diluted EPS +5% YoY. And share prices took a dive for the following ~3 weeks. But in early Nov, right after "Scary Fast", Financial results for Q4 FY2223 were announced. Revenue -1% YoY but diluted EPS +13% YoY. There was an overall drop in revenue this entire FY of 2.8% versus the previous year. Diluted EPS growth is essentially flat for FY2223, up a mere 0.3% versus FY2122. Don't see the correlation.... 🤔
In the 2 days following the announcement from Apple, apart from an initial drop (which appears normal compared to the trendline from the beginning of the month), there has not yet been any drama. Overlaying Masimo's share trend, there's a steady appreciation but again, no break in pattern in the last 2 days. Note that Masimo's trend in the last 3 months, share prices were falling until mid Oct, where they dwelled at level until starting a consistent climb after the first week of Nov until today. Perhaps they had anticipated this a month earlier...? 🤔
My closing points, while I don't expect any immediate effect on the trajectory of Apple's share prices, it may be starting a precedent that may impact other watches in Apple's product line up (again, remember that the overall % of smart watches in Apple's total product portfolio is actually quite low). For now, the slightly bullish, rising trend looks set to continue. There are surely other, more significant factors that will have a greater impact on Apple's share price movement going into the new year.
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