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The US Ban on Apple Watch May Only Slightly Impact Apple’s Earnings

Apple recently made a swift move by deciding to stop selling the Apple Watch Series 9 and Apple Watch Ultra 2 in the US. This decision stems from the need to comply with an imminent ban following a court ruling earlier this year, which found Apple guilty of infringing on the pulse oximeter patent owned by the medical technology company Masimo.

In light of this situation, analysts from leading global financial services firm J.P. Morgan anticipate the ban’s effect to be around $5 billion in sales, equivalent to just 1% of Apple’s total annual sales. To put it simply, if the International Trade Commission (ITC) ban sticks and the Apple Watch Series 9 and Apple Watch Ultra 2 are barred from entering the US, the impact on Apple’s revenue will be relatively minor.

The estimates in the analysts’ note rely on IDC data, a global player in market intelligence. According to IDC, Apple ships about 43.9 million Apple Watch units annually, with an average selling price (ASP) of $466, bringing in an estimated $20 billion in revenue.

Assuming new models make up 80% of shipments and about 30% of global smartwatches are sold in the US, J.P. Morgan arrives at the ballpark figure of $5 billion in total annual sales impact. Just for reference, Apple’s annual revenue for 2022 was $394.328 billion.

The J.P. Morgan note underscores that the ban’s true impact hinges on two factors: how long the ban lasts and Apple’s skill in nudging US consumers toward older models. Steering customers to the initial Apple Watch Ultra seems like a breeze due to minimal differences, but convincing them to opt for older series models could pose a more challenging task.

Despite the halt in direct sales, fear not—third-party retailers are holding onto a trove of older models, ready to cater to eager customers. Apple also has a few tricks up its sleeve to keep the Watch Series 9 and Watch Ultra 2 on the shelves. One option in play involves Apple’s engineering team racing against time, tweaking the algorithms powering the pulse oximeter on the Apple Watch Series 9 and Ultra 2. The goal? Ensuring that this feature no longer treads on Massimo’s patent territory.

Also, Apple, not one to take setbacks lying down, plans to appeal the ruling and has called on the Biden administration to intervene before December 25.

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