Apple's Patent Activity Points To Broad Product Development, Says Bullish BofA

Apple Inc’s AAPL patent applications are indicative of the company’s huge effort in new product development under a broad range of categories, according to BofA Securities.

The Apple Analyst: Wamsi Mohan maintained a Buy rating on Apple with a $390 price target. 

The Apple Thesis: Investors tend to believe there is lack of ongoing innovation at Apple, possibly because they use the iPhone as a benchmark — against which even successful product developments appear merely incremental, Mohan said in a Thursday note. (See his track record here.)

Cupertino has a “large effort underway” in innovation, with patent applications in various categories, like wearables, health and fitness, augmented reality, virtual reality and autonomy, as well as in various hardware components like battery and display, the analyst said. 

The patents suggest near-term products in the wearables category, possibly augmenting the Apple Watch with more health monitoring capabilities, he said.

The wearables business contributes around $28 billion in sales, which is substantial, but overshadowed by the iPhone’s contribution, which was $146 billion in 2019, Mohan said. 

Apple’s spend on research and development grew from $1 billion in 2009 to $13 billion in 2019, the analyst said.

The higher spend is both a defensive strategy of not letting other technological advancements disrupt its lead and an offensive strategy to enter new product categories, he said. 

AAPL Price Action: Shares of Apple were up 0.29% at $361.12 at the time of publication Thursday. 

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Photo courtesy of Apple.