The share price of Apple has slid 6% from a month ago. Yesterday, I posted an analysis explaining why Apple ceded the position of the largest market cap stock to Microsoft. However, there’s more to discuss, as Apple is grappling with a handful of issues that could potentially erode its power.
The first issue involves the ongoing App Store dispute with game maker Epic Games. Apple charges developers a 30% fee on revenues earned from apps, a lucrative ‘gatekeeper tax’ for all apps available on the App Store. Even when developers use alternative payment systems, Apple still collects a 27% commission.
In a previous ruling, Apple was ordered to allow developers to include links that bypass Apple’s payment system. However, Apple has been delaying this implementation through appeals.
On Tuesday, the U.S. Supreme Court rejected Apple’s appeal, indicating that Apple may soon have to allow this bypass. However, the Court also denied Epic’s appeal for side-loading, which means downloading apps onto Apple’s iOS without using its App Store.
The situation is different in Europe, though. The EU has enacted a new law requiring Apple to open up its ecosystem to allow side-loading, similar to how Google’s Android permits side-loading with APK files. Apple is appealing but the deadline to implement these changes is set for 6 March 2024.
Therefore, it appears that Apple’s ‘walled garden’ for its App Store is crumbling. Yet, I believe the App Store won’t lose significant revenue even after opening up. Most Apple users are likely to prefer the convenience of downloading from the App Store, a user habit that is hard to shift, even with new laws.
The second issue concerns the Apple Watch. The International Trade Commission (ITC) has ruled that the blood oxygen sensors in these devices infringe on patents held by Masimo. Consequently, a temporary ban has been imposed, preventing Apple from selling watches equipped with this oxygen feature.
According to a letter from Masimo’s attorneys, published by 9to5Mac, all parties appear to have agreed on a plan to remove the feature from the upcoming Apple Watch Series 9 and Watch Ultra 2. This decision may deter potential buyers who consider this feature a priority.
At this point, the impact of this feature’s removal and its importance to consumers remain uncertain. However, this development could represent a setback for Apple’s ambitions in holistic health tracking. Additionally, it underscores the importance of Apple fulfilling its obligations to compensate for the use of others’ inventions.
The third issue concerns Apple’s slowing iPhone sales in China. In an unusual move, Apple is offering a 500 yuan discount, roughly 5%, on its latest iPhone models in the country. Such discounts are rare for Apple, as they could potentially diminish its brand value, which is largely predicated on the ability to command premium prices.
The competition is intensifying, especially with Huawei’s comeback leading to a shift in demand towards its phones. This has resulted in weaker sales for the iPhone 15 compared to the iPhone 14. It’s anticipated that these discounts might extend to other Apple devices as well.
This situation is concerning, as resorting to discounts appears to be Apple’s last-ditch effort to boost sales in China.
Apple is facing hurdles in nearly every aspect of its business. As mentioned in the previous post, it’s remarkable that Apple’s stock could achieve a 45% return, despite a 3% decline in sales in FY23. I believe there might be room for some correction in the stock price in the short term. Many of the impacts of these challenges are still unknown, but I trust that Apple’s strong branding will eventually help it navigate through these difficulties.
