What's Up With Apple: EU Could Levy $27 Billion Fine, Record Q2 Sales, and More

The European Commission (EC) on Friday informed Apple Inc. (NASDAQ: AAPL) that the commission believes the company “distorted competition in the music streaming market” and “abused its dominant position” as a distributor of music streaming apps through the App Store.

The EC also “takes issue with the mandatory use of Apple’s own in-app purchase mechanism imposed on music streaming app developers to distribute their apps via Apple’s App Store.” One more thing: the commission is “concerned” that some of Apple’s restrictions prevent developers “from informing iPhone and iPad users of alternative, cheaper purchasing possibilities.”

Margrethe Vestager, EC executive vice-president for competition policy, said:

Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store. With Apple Music, Apple also competes with music streaming providers. By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition. This is done by charging high commission fees on each transaction in the App Store for rivals and by forbidding them from informing their customers of alternative subscription options.

Friday’s statement is a result of a complaint filed in 2019 by Spotify. The EC’s investigation into Apple’s App Store practices was begun last June.

In its announcement, the EC said that the statement of objections “does not prejudge the outcome of an investigation.” If Apple is found guilty of violating the EU’s rules, the company faces a maximum fine of up to 10% of its annual revenue. Based on 2020 revenue of $274.5 billion, that’s a fine of $27.45 billion.

Apple’s stock traded down about 1% in Friday’s premarket session, following the EC’s announcement.

In a conference call following Wednesday’s second-quarter earnings report, Apple Chief Financial Officer Luca Maestri said that half of the quarter’s Mac and iPad sales were made to first-time Apple customers. Mac sales rose by 70% year over year to $9.1 billion and iPad sales rose by 79% to $7.81 billion. iPhone generated about 56% ($47.9 billion) of the quarter’s sales ($89.6 billion).

Sales of the Mac were the best ever for the storied brand since it was first introduced in 1984 with the now-legendary TV ad.

Apple also has warned that problems with semiconductor supplies could affect sales in the second half of the year. On the conference call, Cook said that the company expected to be “supply-gate, not demand-gated.” If the reason for the huge increase in Mac and iPad sales is Apple’s new M1 chip, sales of iPad Pro and iMac, both introduced earlier this month, could continue surging.

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