Apple, known for its innovative products and loyal customer base, has hit a roadblock in a technology dispute that has forced the tech giant to halt sales of its popular Apple Watch Series 9 and Watch Ultra 2 in the U.S. The dispute centers around a patent infringement claim by Masimo, a medical technology company. This unexpected development has left Apple and its investors pondering the next steps.
Apple’s Wearables Revenue at Risk
Surprisingly, the U.S. Trade Commission issued a statement accusing Apple of violating U.S. trade laws by infringing on Masimo’s patented light-based pulse oximetry technology. This technology is crucial in enabling the Apple Watch to measure blood oxygen levels, a feature highly valued by users for health and wellness purposes. Apple was given 60 days to remove its products from the market while awaiting a presidential review, which is now being implemented.
For Apple, the stakes are high as it may face the prospect of losing a significant chunk of its wearables revenue. While exact figures are not disclosed, it’s estimated that Apple generated around $21 billion in revenue from watch sales in 2022, making up approximately 5% of its total revenue for fiscal year 2023, which stood at $383 billion. This setback could create a substantial headwind for the tech giant.
Stock Price Resilience Despite Challenges
Despite the significant disruption in its product lineup, Apple’s stock price has shown surprising resilience. Following the news of the sales suspension, Apple’s stock only dipped by about 1%. However, it’s important to note that Apple’s stock has been on a remarkable upward trajectory, posting a 51% increase in 2023. This growth has been somewhat perplexing as the company’s revenue and earnings have decreased.
Apple’s stock is currently considered expensive at a price-to-earnings ratio of 32 times trailing earnings, especially in the face of declining financial metrics. The added uncertainty of potentially losing 5% of its sales from the Watch division in 2024 could spell trouble for the stock’s performance in the upcoming year.
Weighing Investment Decisions in Apple’s Uncertain Future
As Apple navigates through this unexpected dispute with Masimo, investors are left with a challenging decision. The company’s stock price faces potential headwinds shortly after being priced for perfection. While the stock has had an exceptional run in 2023, its underlying financial performance suggests caution may be warranted.
The time may be ripe for Apple investors to consider taking some gains and reassessing their positions as the company grapples with these uncertainties heading into 2024. Investors and tech enthusiasts will closely monitor the outcome of the dispute with Masimo and its impact on Apple’s wearables business.
