The Justice Department cited the deal, which dates back 15 years, as an example of how Google used its huge profits to stop competition. For apple, its a lucrative deal, proving the value of reaching out to more than one billion device users worldwide. While the outcome of the Justice Department lawsuit is far from clear, analysts and investors say the loss of the deal could be quite a blow to apple, given that Google pays as much as a fifth of Apples total profits.
If the case goes to the bottom, Apple may have a bigger financial impact than Google, said Toni sacconaghi, an analyst at Bernstein He estimates that Apples share price could fall as much as 20% if the deal with Google is cancelled altogether. But if Apple can offset the damage through other deals involving Google and its competitors, the impact could be much smaller.
Last week, when the U.S. Department of justice lawsuit against Google came to light, investors seemed to ignore the threat, and Apples share price even bucked the trend. Mark stoeckle, chief executive of Adams funds, said the lawsuit could take a long time to reach a decision. Adams fund is one of Apples largest shareholders, and stoker questioned whether Googles deal with Apple was really illegal. Whats the difference between that and consumer goods companies paying grocery stores for better shelf positions?
There is no doubt that if this kind of deal ends, it will have a negative impact on apple, stoker said in an email But at this point, he believes the risks facing apple are manageable. Apple did not respond to a request for comment on the U.S. Department of justices lawsuit, which did not charge apple with misconduct. Google has refuted the charges, saying users use its search engine because it is the best, not because they cant find a replacement engine.
Last week, Kent walker, Googles chief legal officer, said in a blog post that there was nothing special about Googles relationship with apple, not different from the agreements many other companies traditionally use to distribute software..
The two companies first reached an agreement in 2005, when Steve Jobs was Apples chief executive, and Google search was the default engine in Apples Safari web browser on Macs. The deal expanded with the iPhones debut in 2007. The two companies have never published the exact terms of the deal. In 2016, in other lawsuits involving the search giant, information emerged that Google had paid apple a lot of money. In the course of the lawsuit, the court said Apple received $1 billion in payments from Google in 2014 as part of the deal.
Since then, analysts say, the number has soared, despite differences in their estimates. Analysts estimate that Google pays between $8 billion and $12 billion a year for the deal, which they say is 15% to 20% of Apples profits, according to the Justice Department lawsuit. Apple reported a profit of $55.26 billion for the fiscal year ending September 2019, which many analysts estimate has increased slightly in the past year. The company is due to report fiscal 2020 results on Thursday.
If the U.S. Department of justices antitrust actions disrupt Googles deal with apple, Google will also face great risks. Apple Devices accounted for almost 50% of Googles total searches last year, according to filing documents. Analysts, including sacnaji, speculated that Apple might develop its own search business to compete for advertising revenue, or even by acquiring duckduckgo. Duckduckgo is a small search engine that, like apple, emphasizes privacy. Any such move would add a potentially powerful competitor to Google, even though it still dominates search.
Apples deal with Google is essentially net profit, supporting Apple chief executive Tim Cooks efforts to change direction as apple faces stagnant iPhone sales, which account for about half of the companys revenue. IPhone sales peaked in fiscal 2015, while revenue peaked at $167 billion in fiscal 2018. Googles deal accounts for a large part of Apples so-called services business, which surged from about $20 billion in fiscal 2015 to $53 billion estimated by analysts in the last fiscal year.
Daniel Morgan, senior technology focused portfolio manager at synovus trust, a major shareholder in apple, said Apple might still be able to raise some of the money with multiple search engines paying for the placement. In Europe, for example, after losing a lawsuit against European regulators, Google now allows Android phone users to choose which search engine to use. (small)
Source: Wang Fengzhi, editor in charge of Netease science and Technology Report_ NT2541