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Is Apple Brewing A Major Digital Health Play?

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That Apple has high ambitions in the digital health space isn't foreign news to anyone following the moves of the company. In fact, its CEO Tim Cook once referred to health as Apple's “greatest contribution to mankind.”

Apple's main health product is the Apple Watch for which health represents a major use case and a selling point. The latest Apple Watch series has key health features including the ability to measure ECG (electrocardiogram) and oxygen saturation level in the blood.

  • With all its grand ambitions, the reality is that Apple is progressing very well in the digital health space but yet hasn't gotten a big foothold in it like it's done in other markets. There still exists a large gap for Apple to conquer to make waves in the digital health market and the company seems much hell-bent on covering that gap.

Details:

  • A certain revelation has come out that details Apple's grand plans in the health sector, and it's that of a UK startup working on next-generation health sensors, which's set to go public soon in the US and in its prospectus disclosed that Apple is its largest customer accounting for the majority of its revenue.
  • That startup is Rockley Photonics, a venture-backed startup working on “doctor on a wrist” sensors that it aims to be able to read multiple blood signals typically only detectable with more complex medical equipment by sending infrared light through skin from a module on the back of a smartwatch. Simply put, it's aiming to develop and put to use ultra-accurate sensors that'll vastly improve the health capabilities of smartwatches.
  • In its filing, Rockley disclosed that Apple is its largest customer that brought in the vast majority of its revenue in 2020 and 2019, which were $22 million and $20 million respectively. The payments from Apple were largely engineering fees for work on future products, implying that Apple is helping finance Rockley's R&D work.
  • Rockley's relationship with Apple wasn't disclosed before the filing of its prospectus. It shows a strong tie-up between Rockley and Apple that implies Apple buying first-hand access into potential breakthrough sensor technology that can be put to use on its smartwatches to vastly enhance their health features.
  • Apple is usually secretive with its R&D work and it's usually through ways like this that the public gets hints of the tech giant's ambitions. Definitely, if Rockley succeeds in developing and commercializing breakthrough sensor technology as it's aiming for, Apple would be first in line to grab it to gain a competitive edge over its rivals.
  • Rockley is merging with a US-listed special-purpose acquisition company (SPAC) to become a public company trading on the New York Stock Exchange. Its SPAC target is SC Health Corp (NYSE: SCPE).
Our take: After conquering many markets, the digital health market is still available for Apple to make huge strides in depending on how it plays its cards. Revelations like its tie-up with Rockley signals Apple putting much effort into conquering this area, and who knows the other tie-ups and strategic moves we don't know about?

With a profit of $57 billion on $275 billion in revenue last year, Apple has much suitable cash flow to invest heavily into R&D efforts that may not pan out successfully but would give it a great competitive advantage if it does. Being bullish on Apple making strides in the health market doesn't seem like a bad idea.

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