Reportedly, the U.S. International Trade Commission’s (ITC) proposed ban on some Apple (AAPL) 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 year-ago quarter.
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 Google’s (GOOG) 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 Nokia (NOK), Sony and BlackBerry Ltd (BBRY) 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 forward.
Apple has a Zacks Rank #3 (Hold).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment