Piper Jaffray's Mike Olson: Apple Needs To Keep Up With Chinese Innovation

Apple Inc. AAPL may have saved the tech sector and the market as a whole Tuesday, reporting a solid earnings beat for the third quarter.

The company reported EPS of $1.67 and $45.4 billion in sales compared the consensus estimates of $1.57 and $44.89.

Benzinga had Piper Jaffray’s Mike Olson on its PreMarket Prep morning show to discuss what’s in store for the world’s largest public company.

Like many other analysts, Olson viewed the Apple’s report and plans moving ahead positively, reiterating a Buy rating and raising his price target to $190.

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Eyes On R&D

Olson particularly focused in on Apple’s plans for R&D.

In addition to the company’s already high spending on the development of new products, CEO Tim Cook highlighted a new $1 billion investment fund launched during the quarter, aimed at assisting Apple’s manufacturers.

Some investors have expressed concern that such high R&D costs will put pressure on the stock — nearly $3 billion was spent in Q3.

But Olson dismissed the notion, saying it “doesn't really matter for the stock right now… as we're in the midst of an anticipation trade into the iPhone launch.”

The analyst conceded that the Street is giving Apple a “free pass” on Watch, adding that it will not be a focus area for innovation.

What will be though is augmented reality, which Olson stressed is where management is focused and has large growth potential.

Challenges In China

Strong innovation is going to be critical for Apple’s China market.

Growth was similar for most of the company’s international markets, but revenue fell 10 percent in Greater China.

Olson stated that it “hasn’t been good,” with Apple failing to compete with innovations from emerging Chinese competitors.

Recently Apple has been under pressure from the Chinese government as well. It removed VPN apps, used to circumvent the country’s heavy censorship laws, from the China app store.

It is also investing $1 billion in a new data center in Guizhou province with a Chinese partner to appease regulators, although Apple will maintain full control of the data.

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