Reportedly, the U.S. International Trade Commission's (ITC)
proposed ban on some
) products was recently vetoed by the Obama administration. The
U.S. Trade representative, Michael Froman, noted that the sales
ban would have affected consumers and the U.S. economy.
The Obama administration had earlier expressed concerns
regarding product bans imposed by the ITC on infringement of
standard-essential patents. Incidentally, this is the first time
since 1987 that an ITC ruling was vetoed by a U.S. President.
This June, the ITC upheld one of Samsung's patent infringement
claims against the iPhone maker while setting aside three others.
The ITC, in its final verdict, imposed a ban on several old
models of iPhone (iPhone 4 and iPhone 3GS) and iPad (iPad 3G and
iPad 2 3G) in the country. The import ban was levied since
Apple's devices are assembled in China and are sold in the U.S.
and across the world.
Apple had all along argued that the technology used by it was
"standard-essential" and widely used and that Samsung's claims
should not be given precedence. Despite the current veto on the
sales ban of Apple products, Samsung can appeal to a higher court
regarding the patent dispute.
Meanwhile, the ITC is set to decide on another lawsuit that
was filed by Apple seeking a ban on some of Samsung's products,
alleging the latter's infringement of four patents. The final
ruling by ITC is scheduled this Friday.
Though this is a moral victory for the iPhone maker, the
company has more important issues in hand. Apple's recently
concluded third quarter failed to impress investors, as revenues
inched up a dismal 1% from the year-ago quarter.
Most significantly, gross margins contracted 590 basis points
due to unfavorable product mix, which reflected higher sales of
lower-margin iPhone 4 and 4S and iPad minis in the quarter.
Operating margin plunged to 26.0% from 33.0% reported in the
In this regard, the ban overturn is a much-welcomed relief for
Apple in our view. Apple's iOS continues to face stiff
competition in the smartphone and tablet market from
) Android operating system. Lately, the company had been relying
on the older versions of iPhone to sustain its market share in
the cost-sensitive regions of China and Rest of Asia, where it
faces cut-throat competition from low-cost smartphone makers.
Moreover, stiff competition from Samsung, both in terms of
product range and pricing, remains a major headwind for Apple.
Smartphone makers such as
), Sony and
) are the other contenders for a greater hold in the market.
Nevertheless, we believe that Apple's strength lies in its
ability to innovate. Moreover, the upcoming refreshes of iPhone
and iPad will boost the top line. Additionally, the
shareholder-friendly moves, such as higher dividend payments and
share buybacks, are expected to drive the stock going
Apple has a Zacks Rank #3 (Hold).
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