Apple Hit With $2 Billion EU Antitrust Fine; Concerns Rise Over iPhone Demand

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by Tyler Durden
Monday, Mar 04, 2024 - 01:50 PM

Apple shares dipped in premarket trading in New York after the European Union imposed a fine of €1.84 billion ($2 billion) on the tech giant for violating its competition laws. Additionally, another Wall Street analyst wrote a note to clients about mounting concerns surrounding the demand for iPhones and wearable products. 

Let's begin with the news from Europe. 

The European Commission, the EU's executive body, wrote in a statement that after a yearslong investigation into Apple's app-store practices. It was found that Apple violated antitrust rules by limiting Spotify and other music streaming services from allowing users to pay outside the App Store. 

The EU competition enforcer wrote in a statement:

Today, the Commission has fined Apple €1.8 billion for abusing its dominant position on the market for the distribution of music streaming apps.

Apple did so by restricting app developers' ability to inform users of Apple devices about alternative, cheaper options to purchase music available on the internet outside of the Apple ecosystem.

This is illegal. And it has impacted millions of European consumers, who were not able to make a free choice as to where, how, and at what price to buy music streaming subscriptions.

The Commission noted: 

"For a decade, Apple has restricted music streaming app developers from informing their consumers about cheaper options available outside of the app. Apple has done so by contractually imposing 'anti-steering rules' on music streaming app developers." 

It lists three examples of Apple's 'anti-steering obligations'

  • First, music streaming developers were not allowed to inform their users, inside their own apps, of cheaper prices for the same subscription on the internet.
  • Second, they were also not allowed to include links in their apps to lead consumers to their websites and pay lower prices there.
  • And third, they were also not allowed to contact their own newly acquired users, for instance by email, to inform them about pricing options after they set up an account.

And the result of this practice: 

"Millions of European music streaming users were left in the dark about all available options. And Apple's anti-steering rules also made consumers pay more for such services because of the high commission fee imposed on developers and passed on to consumers." 

Apple criticized the EU decision in a statement to Reuters:

"The decision was reached despite the Commission's failure to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast.

"The primary advocate for this decision — and the biggest beneficiary — is Spotify, a company based in Stockholm, Sweden. Spotify has the largest music streaming app in the world, and has met with the European Commission more than 65 times during this investigation." 

Earlier Monday, Evercore ISI dropped Apple from its "Tactical Outperform" list following the company's report of better-than-expected results in the quarter ending December 2023, attributed to strong performance in iPhones and services, despite some weaknesses in iphone and wearables

The analysts, led by Amit Daryanani, said there is some disappointment in forecasts for the current quarter ending in Mach, which suggests revenues of about $90 billion, marking a 5% decrease year-over-year, with expected earnings per share around $1.50. 

Daryanani believes iPhone sales remain steady and, more crucially, identifies several positive trends that could benefit Apple, including the launch of artificial intelligence products, the adoption of Vision Pro, and an increase in capital allocation. 

Evercore maintained its Outperform rating and a $220 price target for Apple's stock. 

This followed Goldman Sachs's move last week to remove it from the "Conviction List" amid concerns over weak iPhone demand. 

"There are many reasons a stock could get removed from the list. The can include (but are not limited to), analysts no longer having conviction in their idea, price realization, the passage of catalysts or the subcommittee believing there are better opportunities elsewhere," Goldman said. 

The combination of the EU antitrust fine and an increasing number of Wall Street analysts concerned about product demand woes sent shares down more than 1.3% in premarket trading. 

More buybacks please... 

Apple lags behind other big tech stocks. 

There are 33 analysts with buy recommendations on the stock, 17 holds, and 7 sells. 

Is Apple's magic fading?