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Apple (AAPL) Gets Favorable Verdict in China Patent Row

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Apple Inc (AAPL - Free Report) has heaved a sigh of relief after a Chinese court issued it a favorable verdict in a patent infringement lawsuit.

Per media reports, last year, a local smartphone maker, Shenzhen Baili Marketing Services had accused Apple of infringing its 100c phone design. Consequently, a Beijing based patent regulator ordered Apple China and retailer Zoomflight to discontinue sales of iPhone 6 and 6 Plus in the country. Reportedly, the intellectual property bureau had ruled that Apple “copied” the exterior design of 100C smartphones that had curved edges and round corners.

Apple took its case to The Beijing Intellectual Property Court, which rescinded the ban last week. Reportedly, the court was quoted saying, “iPhone 6 had features that completely change the effect of the entire product…and both phones are easily distinguishable in the eyes of consumers,” thereby quashing Shenzhen Baili’s claims.

For Apple, this comes as a big respite. China is the second largest iPhone market. However, of late, Apple has been facing increased competition from cheaper locally manufactured smartphones. This, coupled with persistent macroeconomic weakness, caused Apple's revenues to decline 12% year over year in the Greater China region to $16.2 billion in the last reported quarter.

Though the last few quarters have been marked by sluggish growth, the company remains optimistic about the long-term growth prospects of the region, especially given the hype surrounding iPhone 8

There is tremendous buzz surrounding iPhone 8 as it will be the first iPhone to support AMOLED (active matrix organic light-emitting diode) display. Also, the phone will have a big display screen of 5.8 inches. The OLED display will also boost the phone’s battery life. The leap in display technology, among other innovations, has prompted analysts to label iPhone 8 a “super cycle.”

Moreover, Apple continues to woo China by making significant investments. A CNBC report observed, “Committing money to China could give Apple some favor with the government but also helps it access the local knowledge and talent that's required to compete in the country.” Reportedly, Apple will be spending over half a billion dollars to boost its R&D efforts in China. The company will be establishing four research centers in Shanghai, Suzhou, Shenzhen and Beijing.

Earlier, the company had also invested significantly in the market ($1 billion in the ride-hailing company DidiChuxing) along with opening more retail stores in the region (at the end of the first quarter there were over 40 stores). 

Zacks Rank & Share Price Movement

Apple carries a Zacks Rank #3 (Hold). In the past one year, Apple’s shares have registered growth of 33.19% compared with the Zacks Internet Services industry’s gain of 32.95%.

Stocks to Consider

Better-ranked stocks in the wider technology space include Tech Data Corp (TECD - Free Report) , PC Connection, Inc. (CNXN - Free Report) and Leaf Group Ltd . While Tech Data sports a Zacks Rank #1 (Strong Buy), PC Connection and Leaf Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, Tech Data, PC Connection and Leaf Group have yielded positive average earnings surprises of 8.73%, 1.22% and 27.94%, respectively.

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