(AAPL) Apple Acquires Patents in China

The China’s Patent Office issued 40 patents to Apple Inc. (AAPL) that would enable it to better protect its intellectual property (IP) in the country. The patents cover 37 products, inclusive of the iPhone, iPod and MacBook Air.

In China, Apple has been plagued by the sale of counterfeit iPhones and unauthorized stores that sell these products. Its has been estimated that more than 220 million fake or copycat units of iPhones alone were sold in China in 2010, and this figure is expected to jump to an astronomical 250 million units by year end, as reported by Chongqing Times.

The newly-secured patents are primarily related to mobile phones, including various user interface fundamentals and speaker technology. Additionally, Apple was also granted three design patents for its iAd mobile advertising network, nine patents relating to iPod nano and four patents for its MacBook Air.

With the possibility of Apple filing an IP infringement lawsuit against Asus Ultrabook, which looks similar to the MacBook Air, the patents would be of great help for Apple..

Apple did not only restrict the patents to its products, but it also patented its store designs from all angles, and one exclusively for the glass panels. This was due to reports that fake Apple stores were operating in China.

Upon investigation, Chinese officials found 22 unauthorized Apple stores in Kunming, the capital and largest city of Yunnan Province in Southwest China, three in Chongqing, also in Southwest China. One store was found in Xi’an, the capital of the Shaanxi province.

China had been on Apple’s radar for a long time, and along with Hong Kong and Taiwan, the region generated revenues of $3.8 billion during the recently concluded quarter. Apple also enjoyed an impressive $8.8 billion of revenues from the region in the first three quarters of 2011. Apple expects to expand its reach in the country that has the largest population and has a healthy economic growth outlook in the forthcoming quarters.

We think Apple’s approach of acquiring the patents is wise and would be the foundation for its growth in China. Not only can the fake manufacturers and stores be taken to court, but the Chinese government itself will find it hard not to side with Apple in cases of infringement.

With lingering turmoil in the U.S. and Europe, Apple has finally reached out to emerging markets, where several of its competitors are already well entrenched. Apple’s ability to spur the popularity of the products in developing nations, where pricing is often an important consideration, will go a long way toward deciding the company’s future growth.

Judging from China’s rapidly growing middle class and Apple’s strategic superiority, this may not be an impossible task for the company. Of course, Jobs is no longer at the helm, so it could go either way.

Meanwhile, Apple remains entangled in various lawsuits against Samsung Electronics Co Ltd and Taiwan’s HTC Corp in various countries. Of course, the uncertain outcome of these legal tussles and impending lawsuits against several companies in different countries will remain an overhang on the stock going forward. However, the various lawsuits that it has won in the recent past are heartening.

Apple’s primary smartphone and tablet markets are crowded with the likes of Research In Motion Ltd. (RIMM), Hewlett-Packard Co. (HPQ), Dell Inc. (DELL), Samsung, Cisco Systems Inc. (CSCO), Toshiba and Acer, which are gaining popularity in several international markets. However, so far Apple has managed to maintain its leadership position in the tablet market, and enjoys a very strong position in smartphone markets as well.

We maintain our Neutral rating over the long term (6-12 months). Currently, Apple has a Zacks #2 Rank, which implies a Buy rating in the near term.

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