The dispute between Apple (Apple Stock Quote, Chart NASDAQ:AAPL) and Qualcomm is just a minor bump in the road for the iPhone maker, says John O’Connell, CEO of Davis Rea, who sees Apple’s moves into services and healthcare as propelling the company forward.
The patent infringement battle between Apple and Qualcomm has spilled over this week with a Chinese court granting an injunction against Apple, calling for a ban on nearly all iPhone models in the country as a result of two Qualcomm patents related to adjusting the size and appearance of photos and the managing of applications using a touch screen, both of which Apple says are used in operating systems in older iPhones. Yesterday, news broke that Apple is seeking to resolve the issue by issuing software updates for iPhones sold in China, an indication of how crucial China’s market is to Apple’s sales.
Speaking to the court injunctions, Qualcomm’s General Counsel Donald Rosenberg stated, “Apple continues to benefit from our intellectual property while refusing to compensate us. These Court orders are further confirmation of the strength of Qualcomm’s vast patent portfolio.”
The dispute has impacted Apple’s share price, which is down in early trading on Friday. APPL has fallen 27 per cent since early October and now sits a couple of points down for the year, as investors continue to worry about the company’s growth prospects amid stiffer competition in the mobile phone market.
O’Connell says those fears are unfounded.
“Apple eventually prevails,” says O’Connell, to BNN Bloomberg. “They’re going to build their own modem, probably in 2020, and Qualcomm is just slowly killing themselves. I think Apple has a bright future.”
Apple has said the court decision is likely to harm China’s interests by increasing royalties related to Qualcomm’s patents. “Apple will be forced to settle with the Respondent, causing all mobile phone manufacturers to relapse into the previous unreasonable charging mode and pay high licensing fees, resulting in unrecoverable losses in the downstream market of mobile phones,” said the company in its December 10 filing to the court.
“Apple is investing massive sums in health care and I think this healthcare thing is way, way bigger than whether Apple is going to sell 200 million phones this year or 205 million.” O’Connell says.
“It’s trading at very reasonable valuations and they have a very strong balance sheet,” he says. “It’s one of the most innovative companies in the world and they have the best computer chip out there. They’re going to have to transition from a big chunk of their revenue coming from hardware sales.”
“There’ll be a point in time when you might just actually get [a phone] as a lease and every one or two years you’re passing it in as part of a whole services package. That wouldn’t surprise me one bit,” he says.