Yesterday, Apple and Adobe faced separate challenges. Apple suspended sales of its Apple Watch in the U.S. following a court ruling, while Adobe abandoned its acquisition of Figma. Let’s explore the implications for their businesses and stock prices.
In October, the U.S. International Trade Commission (ITC) ruled that Apple had infringed upon patents concerning a blood-oxygen sensor in certain Apple Watch models, as alleged by Masimo.
Their relationship began in 2013 when Apple considered integrating Masimo’s technology into its future products. However, instead of partnering with Masimo, Apple hired away its engineers to develop the technology independently, as per Masimo’s claims.
The ITC’s decision resulted in a limited exclusion order for specific Apple Watch models, effectively banning their importation into the U.S. Since these watches are manufactured abroad, this ruling disrupts their supply to the U.S. market.
Apple has announced a temporary halt in U.S. online sales of the Apple Watch Series 9 and Apple Watch Ultra 2 starting December 21, and in stores after December 24. The older SE model, not affected by the ruling, will remain available.
Despite this setback, Apple is likely to capitalize on the Christmas sales period. The company is reportedly urging the Biden administration to overturn the ITC ruling, with a deadline set for Christmas Day. If unsuccessful, Apple may resort to further legal action or a settlement.
Investor reaction to this development was muted, with Apple’s stock dipping a mere 0.85%. This modest impact could be attributed to the Apple Watch’s relatively small contribution of approximately 5% to Apple’s total revenue. Also, resolving this issue is unlikely to be a significant financial burden for Apple.
Adobe and Figma have mutually terminated their proposed $20 billion acquisition agreement. This decision follows objections from European regulators who expressed concerns over reduced competition and potential adverse effects on pricing and quality in design tools.
Adobe’s stock, however, reacted positively, climbing 2.5%. This uptick contrasts sharply with the 19% decline experienced when the acquisition was initially announced. The market’s apprehension was largely due to the hefty premium Adobe was willing to pay for Figma – about 50 times its forward revenue. Given the current environment of high interest rates and declining startup valuations, this deal was seen as excessive.
While Adobe is obliged to pay Figma a $1 billion breakup fee, this amount is a mere 5% of the original deal value. This as a small price to pay to avoid an overpriced acquisition under the current economic conditions.
