[Global Focus] Apple in Crisis... No AI Innovation and Stock Price Falters

Once surpassing a market capitalization of $3 trillion (approximately 3,940 trillion KRW) to become the largest by market cap on the New York Stock Exchange and a symbol of innovation, Apple has recently been losing momentum. While the stock market rises day by day, Apple's stock price moves in the opposite direction. After losing the top market cap spot to Microsoft (MS) in January this year, Apple's second place is now threatened by Nvidia's pursuit. Apple's stock price has dropped about 12% this year.

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The reason Apple is moving against the rising U.S. stock market is that it has failed to demonstrate innovation and its core business is also shaky. Recently, major U.S. information technology companies (big tech) have been showing daily AI innovations, but Apple has not joined their ranks and even recently abandoned the 'Apple Car' project. iPhone sales in the Chinese market, which accounts for half of Apple's revenue, have been lackluster, and the ambitious mixed reality (MR) headset 'Vision Pro' sales have also fallen short of expectations.

In particular, Apple has not shown concrete achievements related to AI, a key theme in the U.S. stock market. MS has led the generative AI boom through its investment in OpenAI, and Nvidia dominates the AI semiconductor market. In contrast, Apple remains quiet. It has neither introduced a monetization model nor presented an AI vision yet. In the smartphone sector, Samsung Electronics and Google have already launched on-device AI smartphones, but Apple remains silent.

Reese Williams, Chief Strategist at Wave Capital Management, said, "Samsung currently has generative AI phones and is receiving many positive reviews, but Apple does not yet."

New businesses invested in over the past decade have also failed to shine. According to Bloomberg, Apple decided last month to disband the 'Special Projects Group' that had been developing the autonomous electric Apple Car. Instead, many employees were moved to AI-related departments to focus on generative AI projects. However, criticism is unavoidable that Apple missed the optimal timing for AI investment due to its investment in the Apple Car. Bloomberg evaluated that if Apple had stopped the Apple Car project a year earlier and focused on AI, the situation would have been different.

About half of Apple's revenue comes from smartphones. However, in the largest market, China, its popularity has waned, losing ground to local brands. Despite unusually offering discounts, sales volume actually decreased. According to market research firm Counterpoint, iPhone sales in China during the first six weeks of this year fell 24% compared to the same period last year. Despite two discount sales this year and subsidies reaching up to 1,300 yuan (about 240,000 KRW), sales did not improve, causing Apple to fall to fourth place in market share (15.7%).

The performance of the much-anticipated MR headset 'Vision Pro' has also been disappointing. It was noted as a new product released nine years after Apple launched the Watch in 2015, but market response has been lukewarm. The market expected innovation akin to the iPhone's debut, but the high price of $3,500 (about 4.6 million KRW) made accessibility low, and issues such as weight, glare, and field of view led to a string of early returns.

As a result, negative outlooks on Apple are spreading on Wall Street. Recently, Goldman Sachs and Evercore ISI removed Apple from their recommended lists.

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Legal risks have also accumulated. The EU has taken Apple as an example and launched focused attacks around the implementation of the Digital Markets Act (DMA). On the 7th, the EU Commission implementing the DMA requested additional explanations from Apple regarding Epic Games' claim that Apple blocked the installation of alternative app markets. Earlier, Epic Games, famous for the popular game Fortnite, attempted to develop an alternative app market for iOS to compete with Apple's App Store, but Apple allegedly refused. Ultimately, Apple backed down and allowed Epic Games to offer its own app market in the EU.

The DMA is a law that designates platform operators above a certain size as 'gatekeepers' and imposes special regulations to prevent abuse of market dominance by large platform companies. Violations can result in fines of up to 10% of global annual revenue, increasing to 20% for repeated violations. Currently, six companies including Apple, Google parent Alphabet, TikTok parent ByteDance, Amazon, Meta, and MS are designated gatekeepers.

The implementation of the DMA pressures Apple to abandon its closed ecosystem, which has been a growth engine beyond the simple risk of fines. Apple has built a so-called 'walled garden' by connecting hardware like iPhone and iPad with the iOS operating system and services. This made it difficult for users to use devices outside Apple or move to other ecosystems like Samsung Galaxy. Apple also earned up to 30% commission revenue through the App Store. According to Bernstein Research, last year's App Store revenue reached about $24.12 billion (approximately 31.6647 trillion KRW). However, insisting on a closed ecosystem violates DMA regulations.

The Wall Street Journal (WSJ) stated, "'Walled garden' strategy brought tremendous profits over the past decade, but with regulators stepping in, partners have left and competitors have surrounded Apple."

Additionally, on the 4th, the EU competition authority fined Apple 1.84 billion euros (about 2.6427 trillion KRW) for abusing dominance in the music streaming app market. This amount is 0.5% of Apple's global revenue. It is more than three times the initially expected fine of 500 million euros (about 718.1 billion KRW) and ranks as the third-largest fine related to EU antitrust law violations.

Legal risks are not limited to the DMA. According to the New York Times (NYT), the U.S. Department of Justice is preparing an antitrust lawsuit against Apple for restricting market competition through its closed ecosystem in the first half of this year. Additionally, the U.S. International Trade Commission banned the import of Apple Watch into the U.S. at the end of last year, citing patent infringement of blood oxygen measurement technology by medical technology company Masimo. As a result, Apple reluctantly removed the blood oxygen measurement feature from the Apple Watch.

Apple's future depends on the AI it will release. Tim Cook, Apple CEO, said after announcing the fiscal first-quarter results last month, "We believe there is tremendous opportunity for Apple through generative AI and AI," and "We will share details of the work underway in this area later this year." At the annual shareholders' meeting on the 27th of last month, he emphasized AI investment, saying, "We see the amazing innovative potential of generative AI, and that is why we are making significant investments in this field."

Ben Reitz and Nick Munro, analysts at Melius Research, said attention should be paid to what Apple will announce at this summer's WWDC. They said, "This is the most important launch since the iPhone," and "The new AI will revitalize Apple's service business and could lead many users to upgrade their phones in 2025."

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