Apple is in a predicament over the iPhone’s dominance. Here’s what investors need to know about the latest antitrust lawsuits.

That rarely happens apple (AAPL -0.67%) We reduced our market value by $100 billion, and that’s what happened on March 21st.

The Justice Department and 16 state attorneys general have accused Apple of monopolizing the smartphone market, adding to the list of headaches for the iPhone maker, already struggling with Chinese headwinds and flat sales growth. Ta. Apple also lost its title as the world’s most valuable company earlier this year. microsoft.

The Department of Justice alleged that Apple has an illegal smartphone monopoly in violation of the Sherman Antitrust Act. The complaints were wide-ranging, alleging that Apple was making it harder for Americans to switch smartphones. Undermining innovation in apps, products, and services. And it imposes unreasonable costs on developers, businesses, and consumers.

The general allegations against Apple should be familiar to investors who have followed large technology companies like Apple. alphabetand Amazon. These companies wield enormous market power, and the line between acting simply in their own interests and unlawfully harming customers and the competitive market is a fine line. It’s often vague.

Let’s take a closer look at the Justice Department’s lawsuit and its implications for Apple.

Image source: Getty Images.

government claim

Almost all of Apple’s revenue is centered around the iPhone, including its services business and sales of products such as Airpods and the Apple Watch, which are designed to work with the iPhone. The Department of Justice alleges that Apple extorts higher prices from consumers and imposes higher fees on developers and creators through a variety of anti-competitive tactics.

They include:

• Block innovative super apps. The Department of Justice says Apple has stopped the growth of “super apps” such as: tencentWeChat or alibabaAliPay ranges from payments to messaging to entertainment. According to the Department of Justice, Apple is resisting super apps because if super apps were allowed to offer ancillary apps within them, Apple would lose control of payments it currently holds through the App Store. Because you will lose it.
• Suppression of cloud gaming platforms. The Department of Justice also says that Apple throttles cloud gaming services by forcing gaming platforms to submit games individually rather than including them all in one app. Apple recently lifted those restrictions, but the Justice Department said after years of resisting cloud gaming, those services will no longer exist on the iPhone.
• Excludes cross-platform messaging apps. According to the Department of Justice, Apple is restricting messaging capabilities and limiting video quality from Android phones to encourage people to buy iPhones.

Finally, the Department of Justice has found that Apple limits the functionality of non-Apple smartwatches, helping lock Apple Watch buyers into their iPhones and vice versa, which limits third-party payment capabilities. I claim that. For example, make tap-to-pay functionality available with Apple Pay, privileging your product over your competitors. PayPal.

What’s at stake for Apple

The Justice Department is not suing Apple for a specific amount of money. In its civil complaint, the company says it “seeks equitable relief on behalf of the American people to remedy Apple’s longstanding and pervasive anticompetitive conduct.”

So far, despite billions of dollars in fines, regulators have done little to rein in the market power of big tech companies. Nearly all of the Magnificent Seven stocks have recently reached all-time highs, and many are facing regulatory pressure. For example, Apple was fined $2 billion by the European Union earlier this month for blocking music streaming competition. spotify Providing users with payment options other than the App Store is prohibited and Apple collects a 30% fee through it. Apple plans to appeal the ruling.

Apple makes nearly $100 billion a year in net profit, so unless it’s in the tens of billions of dollars, a fine is unlikely to deter the company or significantly impact its stock price.

What could have a bigger impact is if the Justice Department forces Apple to make major changes to its business practices. This could jeopardize at least some of the revenue from Apple’s lucrative services business, which benefits from the 30% fee Apple can charge from some of its practices that the Justice Department claims are monopolistic. There is.

Although it seems unlikely that it will be a catastrophic blow to Apple’s business, investors should keep an eye on this incident.companies like NetflixSpotify and Fortnite maker Epic Games have accused Apple of anti-competitive conduct for years, and the ruling against Apple could be more meaningful for entertainment apps that rely on the iPhone. There is sex.

For now, this research isn’t a reason to sell Apple stock, but it’s the latest in a series of events that suggest Apple’s best days may be behind it. Apple stock still trades at a premium and could fall if the company doesn’t reassure investors it’s still on the right track.