Is the Apple Watch ban the tipping point?

Apple Inc. NYSE: AAPL had a stellar 2023, gaining 49.39% for 2023 while maintaining the largest weighting in the S&P 500. While the technology sector juggernaut continues to grow, its sales have been stagnating to single digits, causing investors to wonder if shares are overvalued. Its Teflon coating against anticompetitive practices may start to wear thin as it faces more challenges in 2024 from all fronts.

The company got a taste of what may be to come when it received an import ban on two of its Apple Watch models by the International Trade Commission (ITC) over a patent infringement suit by medical technology company Masimo Co. NASDAQ: MASI on Dec. 26, 2023. An appeals court provided a temporary pause of the ban the following day.

Apple Watch patent infringements

The ITC found Apple infringed on two patents owned by medical technology company Masimo Co. NASDAQ: MASI on October 26, 2023, with a 60-day window for the U.S. President to review and veto the decision, which it did not. The infringement pertains to U.S. Patent No. 10,945,648: "Method and Apparatus for Measuring a Physiological Parameter Based on Multiple Wavelengths of Light," which is Masimo's multi-wavelength pulse oximetry technology that uses multiple wavelengths of light to measure blood oxygen saturation better.

Massimo claims Apple Watch also infringes on its technology for combining multiple physiological data points like pulse rate, blood oxygen saturation and perfusion index to assess a user’s health on its U.S. Patent No. 10,687,745: “Method of Apparatus for Physiological Monitoring Using Multiple Data Types.” It also claims Apple had poached away key staff in an effort to steal its technology.

Emergency appeal temporarily pauses ban.

The infringements pertain to the Apple Watch Series 9 and Apple Watch Ultra 2, which carry the blood-oxygen reading technology. The ban on Apple selling the watches went into effect on Dec. 26, 2023, after the U.S. President opted not to veto the ruling. Apple had preemptively stopped selling them online and in stores a week prior. A U.S. Court of Appeals for the Federal Circuit provided a temporary pause to the ban on Dec. 27, 2023.

 

The ITC will need to render a decision by Jan. 10, 2023. Apple resumed sales of the series 9 and Ultra 2 and expects the U.S. Customs and Border Protection to decide on whether its redesigned models still violate the patents. Apple doesn’t provide details on Apple Watch sales. It is lumped in under its "Wearables, Home and Accessories" revenues, which also include Air Pods, Beats, and accessories.

The segment reported $39.8 billion in sales during fiscal 2023. Analysts estimate Apple Watch may account for 6% to 10% of sales under that category. Check out the sector heatmap on MarketBeat.

Antitrust litigations

Apple continues to face antitrust litigations going into 2024. Apple Pay continues to be investigated by the European Union for abusing its market dominance to exclude rival wallet providers from NFC access on iPhones. Several credit unions sued Apple, alleging anticompetitive practices using its market strength in tap-and-pay wallets to stifle competition for Apple Pay, leading to a class action suit. 

Its App Store has received much controversy over its 30% fees for developers and publishers. Epic Games, developer of Fortnite and Unreal Engine, has sued Apple and Alphabet Inc. NASDAQ: GOOGL, which owned Google, citing anticompetitive practices. The conflict rages on. Many countries, including South Korea and Australia, are investigating Apple's App Store practices and policies. Japan is drafting a new anti-monopoly law targeted at app stores and payments to loosen control by Apple and Google. Get AI-powered insights on MarketBeat.

 Apple analyst ratings and price targets are at MarketBeat. Apple peers and competitor stocks can be found with the MarketBeat stock screener.   

Daily gap fill

The daily candlestick chart on AAPL illustrates a potential gap between $190.18 and $186.88, which occurred on Aug. 4, 2023. AAPL shares peaked at $197.70 on July 19, 2023, as shares gapped down and continued to sell-off to a low of $165.45 on Oct. 26, 2023, falling under the daily 200-period moving average support of around $170.07.

AAPL staged a rally since they were grinding up through the gap-fill area and peaking at a new all-time high at $199.62 before the pullback ensued. The daily market structure low (MSL) trigger formed at $194.66 on Dec. 28, 2023. The gap fill is a price magnet if the MSL doesn’t trigger. The daily relative strength index (RSI) continues to slip to the 50-band. Pullback support levels are at $186.88, $180.06, $175.30 and $170.07.