©®™Uguba™ndubuisi™blog |: Finance Tech: Apple had a very bad quarter

Wednesday 27 March 2024

Finance Tech: Apple had a very bad quarter

Wednesday, Mar 27

Dan Howley here, and welcome to this week's edition of the Yahoo Finance Tech newsletter. Apple is having a rough go of it. The company is not only facing what could be a protracted antitrust battle with the Department of Justice and a new European Union investigation into its App Store, but it's also contending with a slowdown in iPhone sales in one of its most important markets: China.

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It's safe to say things aren't going Apple's way at the moment.

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But before we dig into that, here are some other major tech stories you should be following this week.

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🍎 Apple announces WWDC 2024 dates: We'll talk more about Apple's difficulties in a moment, but first let's chat about its WWDC event. The company is expected to use the showcase as a jumping-off point for its generative AI services. There's still no clear understanding as to what kind of generative AI capabilities the company is cooking up, or whether they'll target both consumers and the enterprise like Microsoft and Google have.

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It'll also be worth seeing whether Apple provides generative AI via the cloud or on the iPhone itself. Apple has always prided itself on the neural engine in its A series iPhone processors, so it would only make sense that it would take a mixed approach at the very least.

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We'll find out more June 10.

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💻 Intel and Microsoft know what an AI PC is: Intel and Microsoft have been pushing AI PCs as the next big advancement in laptop and desktop computer technology. It's just that no one could tell you what exactly an AI PC was. Until now.

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According to Tom's Guide, Intel and Microsoft have reached an agreement as to what makes an AI PC. Not only does a system need to have a CPU, GPU, and neural processor, it also must come with Microsoft's Copilot app installed and have a Copilot keyboard key.

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But I'm still confused as to why my friends and family members should go out and buy an AI PC beyond the fact that they'll be able to run some generative AI models on their laptops. Hopefully, the companies will tell us that next.

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🪟 Qualcomm is getting serious about Windows PCs: Qualcomm is best known for designing the chips that power smartphones like Samsung's Galaxy S24 and the 5G modem inside Apple's iPhone. But now the company is preparing to kick off a fresh push into the PC market with its upcoming Snapdragon X Elite chip.

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Yes, Qualcomm tried to take on the Windows market in the past, but the effort largely flopped due to a lack of native apps. But with Snapdragon X Elite laptops set to hit store shelves sometime this year, the company is taking steps to ensure apps run well on the platform including Google's Chrome browser. Chrome is the most popular web browser around, and ensuring it runs on the Snapdragon X Elite platform is paramount to its success. Sure, the processor will also have to provide great battery life and performance, but one thing at a time.

More tech headlines

😈 Reddit's deal with the AI devil.

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🍏 "Apple will prevail": US faces uphill slog in new antitrust battle.

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⛲️ Apple turns to longtime Steve Jobs disciple to defend its "Walled Garden".

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⚠️ Extremists in US are increasingly doxxing executives, officials say.

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🎮 GameStop shares fall as video game retailer faces competition, weak spending.

🩳 Reddit tumbles after Hedgeye names it a short idea.

Apple's first quarter has felt more like an entire (bad) year

Apple is in the midst of what you could generously call a "difficult" period.

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The company is contending with a high-profile antitrust battle with the Department of Justice, falling iPhone sales in China, and a regulatory investigation in the European Union. And those are just the headlines from the past week.

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The company is also still facing a shortfall when it comes to generative AI capabilities. And while it's widely expected to debut some kind of generative AI offering during its WWDC developer event on June 10, it'll need to have quite an impressive showing if it's going to catch up to its Big Tech rivals including Microsoft and Google.

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All of that is hurting Apple's stock price. Shares of the iPhone maker have fallen more than 7% since the start of the year and are up just 6.25% over the last 12 months. Shares of Microsoft, meanwhile, are up 14% year to date and 49% over the last 12 months. Google? Shares of the search giant are up 9% year to date and 43% in the last 12 months.

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Suffice it to say, Apple's 2024 is not going well.

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Apple's China problem

Apple's latest headache came Tuesday, when Bloomberg, citing Chinese government data, reported that iPhone shipments fell 33% year over year in the country in February.

China is Apple's third-largest market behind North America and Europe. In 2023, the region accounted for $72.6 billion of Apple's $383.3 billion in total revenue. That's roughly 19% of the company's sales.

And this isn't exactly out of the blue. Earlier this month, Counterpoint Research reported that iPhone sales fell 24% year over year through the first six weeks of 2024 in the country. Overall smartphone unit sales in China declined 7% during the same period.

Apple has been aggressively expanding in China for years, but a resurgent Huawei and difficult economic conditions in the country are squeezing device sales. The company isn't just sitting idly by, though. Last week, CEO Tim Cook flew to China for the opening of the company's latest flagship store in Shanghai. He also attended the China Development Forum in Beijing and was expected to meet with Chinese President Xi Jinping.

According to the South China Morning Post, Apple-authorized retailers are also trying to goose sales, cutting the price of the company's latest iPhones in the hopes that it will get consumers to start buying again. However, it might take more than lower prices to make that happen.

A battle with the DOJ

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Outside of Apple's China sales drama, the company is also facing its long-anticipated antitrust fight with the Department of Justice. The lawsuit, which the DOJ filed last Thursday, accuses Apple of illegally maintaining dominance over the premium smartphone market by pushing aside competing apps and devices.

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The Justice Department claims that Apple imposes restrictions on app developers, makes it difficult for users to switch to competing platforms, and hinders cloud gaming and so-called super apps that allow users to access multiple smaller apps from one larger platform.

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Apple, however, is fighting back, saying in a statement that the suit "threatens who we are and the principles that set Apple products apart in fiercely competitive markets. If successful, it would hinder our ability to create the kind of technology people expect from Apple."

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The DOJ is seeking to force Apple to change its business practices, which could mean giving third-party apps greater access to the company's platforms and requiring Apple to expand compatibility with third-party device makers.

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The lawsuit could also prove to be a dangerous distraction for Apple similar to how Microsoft's antitrust battle in the '90s stole executives' attention away from emerging technologies like smartphones. If Microsoft hadn't been so invested in its antitrust fight at the time, there's a good chance it would have seen the smartphone age coming as Apple and Google did, and launched its own line of handsets.

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European Commission calling

In addition to slowing iPhone sales in China and the DOJ's antitrust suit, the European Union's competition watchdog, the European Commission, on Monday announced that it is looking into whether Apple is in compliance with the bloc's Digital Markets Act.

In a statement released Monday, the Commission said it is investigating Apple's new app fee structure in the EU, as well as whether it meets user choice obligations related to default apps and the ability to delete preinstalled apps.

The Digital Markets Act requires Apple to open up the iPhone to third-party app stores, enabling developers to get around the 30% and 15% fees the company charges for sales through its own App Store. While Apple said it will allow those third-party stores, the company said it will also charge developers a 50 euro cent Core Technology Fee per install per year on apps that have been installed more than 1 million times in the last 12 months.

In a statement, the EC said it is looking into whether Apple's new fees defeat the purpose of the obligations of the Digital Markets Act.

While Apple is certainly facing a slew of challenges, it's far from down and out. It's still the second-richest company in the world by market capitalization — behind Microsoft — and it's sure to continue to sell millions of devices and services subscriptions throughout the year ahead.

Still, for the foreseeable future, Apple could be in for a bumpy ride.