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Apple Roundup: Qualcomm, Video, Music, Estimate Cut, New Campus

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Qualcomm’s (QCOM - Free Report) win against Apple (AAPL - Free Report) in China, its video content push, Music-related acquisition, new Austin campus and HomePod launch in China were the top Apple stories last week. Here are the details-

Qualcomm Ruling in China

The Fuzhou Intermediate People's Court in China issued a preliminary injunction banning sales of older iPhones including the iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus and iPhone X as they were found to be in infringement of two Qualcomm patents. The patents cover technology to reformat the size and appearance of photos and manage applications on a touchscreen when navigating through phone apps.

The recently-launched versions use different technology and aren’t part of the case.

Apple’s solution is a software update. The company said in a messaged statement: “Based on the iPhone models we offer today in China, we believe we are in compliance…To address any possible concern about our compliance with the order, early next week we will deliver a software update for iPhone users in China addressing the minor functionality of the two patents at issue in the case.”

It also filed a request for reconsideration with the court on grounds that continuing to sell iPhones didn’t constitute "irreparable harm" to Qualcomm, a necessary consideration for a preliminary injunction.The request also warns of the impact on its Chinese suppliers and consumers as well as the tax revenue it pays to authorities. As far as Apple is concerned it could force the company to settle with Qualcomm. Qualcomm has paid a 300 million yuan ($43.54 million) bond to cover potential damages to Apple, which Apple is willing to double as "counter security" if the ban lifted.

Content Push

Apple has an agreement with DHX Media that will see the Canadian broadcaster produce new shows, specials and short-form STEM (Science, Technology, Engineering and Math) content based on Peanuts characters Charlie Brown, Snoopy, etc. exclusively for the company’s upcoming video platform.

The Peanuts comic strip was created by the late Charles M. Schulz, whose family retains a 20% stake in the brand, Sony Music Entertainment owns another 39% with the controlling 41% stake acquired by DHX last year. The iconic characters have already generated TV series, specials, stage productions, theme park attractions, annual holiday specials “It's the Great Pumpkin, Charlie Brown” and “A Charlie Brown Christmas,” and more recently, “The Peanuts Movie,” which grossed $130 million in the U.S. and $246 million worldwide.

Apple’s focus on kids content (earlier it signed on Sesame Workshop to produce fresh kids content) is in line with an industrywide strategy to catch viewers early and then keep them within a company’s ecosystem. Netflix (NFLX - Free Report) and Disney (DIS - Free Report) are others doing pretty much the same thing.

Platoon Acquisition

Apple has acquired London-based Platoon, a company that operates like an indie music label, helping rising artists get discovered by the public and bigger labels. Starting from discovery to funding, distribution and marketing of their content, it takes care of all elements of the business so they can focus on the content alone.

The company was founded by former Skype executive and co-founder of LoveFilm, Saul Klein and former music talent manager and founder of direct-to-consumer record sales company Artists Without A Label, Denzyl Feigelson.

Apple’s interest in the company seems obvious: it is now focused on building its services segment, of which Music is a key part. Content acquisition is an expensive and complicated business, especially once artists are established. So acquiring the talent that can identify them before they make it big and then bringing them to the huge Apple platform to build their careers must be an exciting proposition.

Estimate Cuts Continue

A host of analysts are lowering their estimates on Apple, which along with the company’s decision to stop presenting iPhone units, is leading to increased uncertainties about the company and telling on its share price.

Morgan Stanley analyst Katy Huberty recently took down her price target citing lengthening replacement cycles in China, a key market for Apple. This follows Goldman Sachs, which pointed to lackluster international reception of the iPhone XR; Guggenheim Partners, which saw declining iPhone unit sales in 2019; UBS, which recommended caution because of supplier warnings and weak international sales; HSBC, which took issue with its dependence on a single product; and Rosenblatt Securites and DA Davidson, both of which estimates lower iPhone shipments. To top it all, celebrated Apple analyst Ming-Chi Kuo of TF International Securities lowered his iPhone shipment estimates by 20%.

New Apple Campus

Republican Texas Gov. Greg Abbott told CNBC that Apple will be building a $1 billion campus in Austin, Texas, less than a mile from its existing facility in the region. The new campus will initially accommodate 5,000 people with the capacity to add 10,000 more. Apple joins several other large corporations in the state that the governor says is attractive because of its top tier universities and low taxes.

HomePod in China and Hong Kong

Apple’s HomePod, which originally launched in the U.S., Australia, and U.K. in Feb 2018, expanding to Canada, France and Germany in June, and Mexico and Spain in October, is set to launch in China and Hong Kong for HK $2,799 ($358) in "early 2019."

Unlike the other markets, Apple has several advantages in China when compared with Alphabet’s (GOOGL - Free Report) Google Home or Amazon (AMZN - Free Report) Echo. First, it supports local languages Cantonese and Mandarin and second, it includes integrated services like iCloud, Maps and Apple Music. Google and Amazon haven’t done as much with their home speakers, which could be why they are yet to launch in the region.

Loup Ventures (via Mark Gurman of Bloomberg) estimates that Apple will sell about 20 million HomePods a year by 2025, compared to Google’s 200 million units and Amazon’s 138 million units that year. Canalys estimates that China was the fastest-growing smart speaker market in the second quarter of 2018, contributing to 52% of the category’s global growth.

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