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Apple Woes Mount as Germany Court Rules in Qualcomm's Favor

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AppleAAPL suffered yet another blow as a court in Germany found the iPhone maker violating one of Qualcomm's QCOM patents and banned it from selling some older iPhones.

Per Reuters, Apple said it will withdraw iPhones including iPhone 7 and iPhone 8 from the German market after it was prohibited to sell phones that have Qorvo, Inc. QRVO and Intel chips. Notably, both the chip providers violated Qualcomm's "envelope tracking" patent.

Apple is set to appeal against the decision but if Qualcomm pays the bond amount of $765.9 million, the order is likely to go into effect. As the chipmaker notified that it will pay the bond amount in a few days, it is likely that Apple may be able to defend itself.

Patent Violations Land Apple in Trouble

Although the recent verdict is unlikely to hurt Apple's top line, the ban in China on the import and sale of most iPhone models for infringement of two Qualcomm patents is a headwind.

Greater China, one of Apple's major markets, accounted for roughly 18% of Apple's fourth-quarter 2018 revenues. Additionally, Apple, which is heavily dependent on iPhone sales (59% of fourth-quarter 2018 revenues) could witness severe blow to its revenues due to other issues pertaining to production cuts and delay in the launch of 5G iPhones.

Moreover, the ongoing trade dispute between the United States and China may further worsen things for the tech giant.

Apple's shares took a hit due to the above issues. Notably, year to date, the company has lost 7.3% compared with the industry 's decline of 7.2%.

Shift to High-Margin Business Model to Aid Revenues

Apple is shifting toward a high margin business model by including more services to its portfolio.

Apart from boosting services segment revenues by partnering with Amazon AMZN and expanding into new markets, Apple's foray into augmented reality (AR), healthcare market and autonomous vehicles is a tailwind.

Acquisitions aided Apple's AR push especially in wearables. The company's expected launch of its AR headset/device by 2020 may boost wearables revenues. Notably, total revenues from wearables increased more than 50% year over year in the last reported quarter.

In the healthcare space, Apple continues to partner with several communities, enabling users to easily access their medical records. Moreover, Apple Watch is gaining traction with improved options such as electrocardiogram (ECG) reader and built-in accelerometer and gyroscope.

Apple is also strengthening its autonomous car technology development efforts. Per Techcrunch, the number of its autonomous vehicles ready for tests has increased 27% in the past four months. Apple is currently permitted to test 70 autonomous vehicles, making its fleet the third-largest after GM Cruise and Waymo.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM) | Apple Inc. Quote

We expect this Zacks Rank #3 (Hold) company to also benefit from the upcoming launch of its standalone streaming TV service in 2019.

You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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