Shares of Apple (NASDAQ:AAPL) fell 4% on Thursday after the iPhone maker was hit with an antitrust lawsuit by the U.S. Department of Justice (DoJ) for “monopolization or attempted monopolization of smartphone markets.”
The stock was trading barely higher on Friday after the opening bell, however the lawsuit presents yet one more challenge for the struggling tech giant. Apple has lagged a lot of the Magnificent Seven stocks over the past 12 months and is down about 8% 12 months to this point.
Let’s take a take a look at the lawsuit and what it would mean for Apple investors.
Monopolizing the smartphone market?
Filed within the U.S. District Court in Recent Jersey, the grievance alleges that Apple is in violation of the Sherman Act. It states that the iPhone maker unlawfully holds a monopoly within the smartphone market by “selectively imposing contractual restrictions on and withholding critical access points from developers.” The DoJ also accuses Apple of undermining other services that may make users less reliant on the iPhone, promote interoperability, and lower costs for consumers and developers.
The suit, joined by 16 other state and district attorneys general, is in search of relief to revive competition to those markets.
“Consumers shouldn’t should pay higher prices because corporations violate the antitrust laws,” U.S. Attorney General Merrick Garland said in a press release. “We allege that Apple has maintained monopoly power within the smartphone market, not just by staying ahead of the competition on the merits, but by violating federal antitrust law. If left unchallenged, Apple will only proceed to strengthen its smartphone monopoly. The Justice Department will vigorously implement antitrust laws that protect consumers from higher prices and fewer decisions.”
Amongst the particular complaints, the DoJ alleges that Apple has:
- Blocked the expansion of apps with broad functionality that may make it easier for consumers to modify between competing smartphone platforms;
- Blocked the event of cloud-streaming apps and services;
- Made the standard of cross-platform messaging apps worse and fewer secure so customers should keep buying iPhones;
- Diminished the functionality of non-Apple smartwatches;
- Limited third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.
Apple issued a press release, saying it would “vigorously defend” itself against these allegations.
“This lawsuit threatens who we’re and the principles that set Apple products apart in fiercely competitive markets,” Apple management said, in line with 9to5Mac, an Apple news site. “If successful, it might hinder our ability to create the type of technology people expect from Apple—where hardware, software, and services intersect.”
The corporate also said the lawsuit would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”
“We consider this lawsuit is incorrect on the facts and the law, and we are going to vigorously defend against it,” Apple concluded.
Facing headwinds
Apple has already been facing other major headwinds, because it reported 4 consecutive quarters of year-over-year revenue declines, breaking that streak in Q4 2023 with a revenue increase. While the corporate didn’t provide official guidance for 2024, comments made throughout the Q4 earnings call indicate that revenue is anticipated to be roughly flat in Q1, and analysts see stagnating revenue growth through 2024.
This lawsuit adds to Apple’s troubles, but just how much is unclear. For starters, the case will probably drag on for years, so don’t expect anything to occur soon. If the DoJ ultimately wins the suit, Apple would probably should alter a few of its practices, and at worst, possibly even face some type of breakup, although this latter scenario seems highly unlikely.
For instance, the DoJ won its antitrust suit against Microsoft (NASDAQ:MSFT) in 2001 for its monopoly on the pc market with its Windows software, but that didn’t end in a breakup of the corporate. Actually, Microsoft ultimately emerged from that case a stronger company. Apple has nowhere near the 80% market share that Microsoft had on the time. It does hold a few 60% share of the smartphone market within the U.S., but globally, its market share is simply about 25%.
Market shrugs the DoJ case off
The market looked as if it would shrug the lawsuit off on Friday, as Apple stock rose barely, climbing about 0.5% in morning trading. Analysts also looked as if it would mostly take it in stride, as none had modified their price targets as of Friday.
Several leading analysts said it could create short-term headwinds for Apple as a result of headline risk and the distractions in defending its brand. Long run, even when the DOJ prevails, analysts don’t see a judgement materially impacting its business model or its market share.
“While the DoJ’s charges are focused on iPhone, we don’t see likely remediation as materially impacting Apple financially or undermining the iPhone franchise: worst case, Apple pays a fantastic and loosens restrictions for competition across the iOS platform, which we consider may have limited impact on iPhone user retention or on Services revenues,” analysts at Bernstein wrote.
Analysts at Wedbush said Apple should discover a method to settle, pay a fantastic, and “ultimately find some compromise with developers on the App Store structure down the road.”
Within the meantime, Apple investors can sit up for the discharge of its much-anticipated iOS 18 operating system in June on the annual Worldwide Developers Conference (WWDC).
Ultimately, this DoJ lawsuit is definitely something to watch, but there’s no reason to sell Apple stock due to it. This can take years to sort out, and even then, it’s unattainable to know what type of impact it would have without delay, if any in any respect. Nonetheless, history tells us that Apple has been capable of navigate challenges over time. The larger concern for investors must be its stagnating revenue-growth trajectory and the potential impact of the upcoming iOS 18.