They couldn’t stop a Chinese patent story from taking a bite out of Apple.
Excerpts from the notes we’ve seen. More as they come in.
Brian Colello, Morningstar: The report surprised us, as we thought Apple’s $1 billion investment in Chinese ride-hailing service Didi Chuxing was exactly the type of public/private partnership with the Chinese government and local businesses that would have prevented Apple from these types of pushbacks and headlines. Future rounds of investments in local Chinese startups may be needed going forward. Fair value: $133.
Gene Munster, Piper Jaffray: iPhone Ruling In Beijing Irrelevant To Numbers. Multiple media outlets reported that a regional court in Beijing ruled that the iPhone 6 and 6 Plus infringe on a patent owned by a Chinese smartphone maker. Apple issued a statement that all models of the iPhone remain for sale today in China and that they have appealed the ruling. We note that the ruling appears to be only for the Beijing region and not all of China. The bottom line is that the ruling is unlikely to have any impact on numbers because the iPhone 6 and 6 Plus model will be discontinued in September with the launch of the iPhone 7, and we expect the appeal to last through that period. Even if the device were banned through all of China for the Sep-16 quarter, it would likely be no more than a 2-3% iPhone unit headwind, or a 1-2% revenue headwind, just for the September quarter. Overweight. $153.
Steve Milunovich, UBS: Problems in China Likely Overblown Near Term but Underscores Existential Threat. Two months ago Forbes reported (link) that Apple’s iBooks Store and iTunes Movies were suspended due to new laws that restrict foreign companies from publishing content in China. We have written that China is an existential threat to Apple in that the government could decide to favor local suppliers (link). However, we view this as a long-term risk. In F15 before China slowed, the country represented 25% of revenue and 27% of operating profit as well as 53% of revenue growth and 45% of operating profit growth. Buy. $115.
Amit Darianani, RBC: Business as Usual—Expect No Impact from Beijing IP Case. We note that according to China IP Law, Apple can continue selling iPhone 6 and 6 Plus model during the appeal phase (this is the case currently as AAPL continues to sell all its products across China). We would also note that should the Court rule against Apple in the final decision, the ruling will only affect sales in the City of Beijing. Therefore, we do not think the case will have any material negative impact on Apple’s revenue and margins in China. Outperform. $115.
Tim Long, BMO: Expect No Impact From Beijing Patent Ruling. The ruling is limited to models released nearly two years ago, and does not seem to include recent phones like the 6S or the SE. Additionally, the ruling may only relate to sales in Beijing. We believe all sales are continuing as before, possibly because Apple has filed an opposing motion. We believe there have been several prior cases against US companies ruled in favor of local companies by lower courts that were later overturned by higher courts. We have seen dozens of court decisions banning different smartphone products over the years in many different countries. We are not aware of one ever that has resulted in an actual injunction. Outperform. $118.