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ResearchThree Things (12/20)

Three Things (12/20)

Dec 20, 2023

“Innovation distinguishes between a leader and a follower." — Steve Jobs


Apple Watch roadblock

Apple will be stopping sales of the Apple Watch in the United States, in order to comply with an ITC ruling in its patent infringement dispute with the medical company Masimo. The company claimed that Apple violated patents surrounding the watch’s blood pulse oximeter. The restriction only applies to Apple’s own retail channels as Best Buy, Target, and other resellers can continue to offer the products.

The timing couldn’t be worse with Christmas and last minute shopping around the corner. Unless the tech giant settles, the ban will likely impact sales this quarter but we don’t expect much of a long-term issue. Masimo Chief Executive Officer Joe Kiani said he is open to settling but Apple hasn’t approached the company, making us think that the tech giant will likely innovate around the issue. It’s a $17 billion rescue mission but Apple is usually one of the best in the biz when it matters most. 

Office troubles

Office building owners, hammered by falling demand and high interest rates, had a tough 2023 but next year may be even worse. The U.S. office vacancy rate stands at a record 13.6%, up from 9.4% at the end of 2019, according to CoStar Group, with expectations it could peak at ~17%. Additionally, delinquency rates for office space are expected to be over 8% in 2024. 

Landlords likely tried to extend their loans to buy themselves more time but those extensions are set to expire in the coming year. “In 2024, it’s game time,” said Scott Rechler, chief executive of RXR Realty. “Owners and lenders are going to have to come to terms as to where values are, where debt needs to be and right-sizing capital structures for these buildings to be successful.”

Adobe walks

Adobe walked away from its $20 billion acquisition of startup Figma on Monday after they saw “no clear path” to getting regulatory approvals from the European Commission and the UK’s Competition and Markets Authority. Adobe will pay Figma a $1 billion termination fee to walk away from the deal.

On one hand, Figma is a disruptive competitor (like Canva) to Adobe and their innovative platform was definitely part of the impetus for a deal in the first place. Losing out may pose longer term impacts on the business' growth. On the other hand, the acquisition was extremely expensive and the capital can now be used for buybacks / other form of shareholder returns - a potential positive for shareholders, in our eyes.


Disclosures:

As of writing, AAPL and ADBE are holdings in Titan's Flagship strategy.

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