Technology giant Apple (AAPL:NASDAQ) is facing an epic fight with regulators after the US Department of Justice launched a lawsuit accusing the iPhone maker of violating antitrust laws and suppressing competition by blocking rivals from accessing hardware and software features on its devices.

The challenge, announced last week (21 March), saw shares in Apple lose more than 4%, their biggest one-day fall since August 2023 according to Bloomberg. The decline also brings Apple’s year-to-date slide to 11%, erasing around $293 billion from its market value.

The sell-off stands in contrast to the rest of big tech. The US-listed Roundhill Magnificent Seven ETF, which tracks the performance of the ‘Magnificent Seven’ stocks, is up 19% year-to-date.

Antitrust legal challenges are par for the course in the technology industry, but they are typically brushed off by analysts and investors with most eventually settled by hefty fines before being consigned to history. But Apple now finds itself under threat on three of its most important fronts – Europe, China and now its own backyard.

Apple became a powerhouse stock due to its innovation and growth, but without iconic chief executive Steve Jobs at the helm innovation has come to a standstill. The company killed its multi-year attempt to build an electric car, is behind in the AI race, and has been unimpressive in delivering the ‘wow’ factor in new iPhone releases.

The US suit also puts Apple’s Services business in the watchdog’s crosshairs, the firm’s biggest source of growth in recent years. Home to the App Store, Apple Pay and Apple Music, and fed by more than two billion Apple devices in use, services revenue expanded 9% in fiscal 2023 while product revenue, including iPhones, Macs and iPads, dropped 3%. Adding to the threat, despite only accounting for 22% of Apple’s sales, services generated more than a third of profit.

Analysts have flagged similarities to the groundbreaking antitrust battle that brought the US and Microsoft into opposition in the 1990s, with Apple now having to defend itself over accusations it has abused the significant power it has accumulated over users.

Despite the heightened threat to Apple, Morningstar analysts remain supportive. ‘We still believe most Apple users opt into the firm’s premium closed ecosystem, and we don’t predict significant attrition for the firm’s products and services even in a more open environment,’ said William Kerwin.

‘We assume the suit will result in some opening of Apple’s walled garden ecosystem, similar to what we expect from the European Union’s Digital Markets Act,’ added Kerwin. 

‹ Previous2024-03-28Next ›