Apple Inc Has Emerging Issues

AppleEarlier this year Apple Inc. purchased Beats Music and Electronics for $3 billion. Beats is a streaming service that does not offer downloads like Apple’s iTunes. Apple charges $10 per month for the service. It is one of the company’s emerging issues.

The company has now re-evaluated its business model and found that the $10 monthly price tag is too high. Re/Code Co-Executive Editor, Kara Swisher feels that the majority of streaming customers are unwilling to pay the $10 monthly premium. With competitors like Pandora and Spotify, Apple is negotiating with major music companies to reduce costs to stay competitive in this market with its limited pool of customers. While recording companies may not be receptive to the cost reduction idea, Apple feels that this is the only way the streaming industry will grow. Recording companies will also benefit in the long run.

While effective streaming revenues are not a major issue to the company’s bottom line, a larger iceberg lies ahead. It could find itself liable for $8 billion in back taxes to the European Commission (EC).

These taxes would be due because of the deals the technological giant engaged in with Ireland. What has become a major issue for the Obama administration is the attempt to stem the increasing tide of companies incorporating themselves to avoid the high U.S. corporate tax rates.

The EU began investigating the iPhone maker in June after a U.S. Senate committee accused them and other American companies of shielding billions of dollars in taxes by entering into inappropriate deals with the Irish government. According to the EU, all companies must be treated equally and disapproves of special deals for tax evasion purposes. If improprieties are found, the company would have to pay a record fine of billions of euros and be subject to an increased tax rate going forward.

While the corporate tax rate in Ireland is at 12.5 percent, which is less than half that of the U.S., claims have been made by the Senate committee that Apple negotiated a rate of 2 percent with the Irish government. While these claims were rejected by the Irish business minister, he did state that loopholes used by the company have been closed. Beginning in 2015 companies will have to declare a tax residency. No longer will they be allowed to establish a “paper only” headquarters. Tim Cook, Apple’s CEO not surprisingly, stated that the company has met all of its tax obligations.

On another front, Deutsche Bank has downgraded the Apple Inc. stock (NASDAQ: AAPL) from a buy to a hold. In doing so it lowered its target price for the stock to $102 per share. In support of the downgrade analyst Sherri Scribner stated that the high expectancies for iPhone sales will make it difficult for the company to exceed expectations. The company has also announced all of its new products to the year’s end. New sales expectations, she feels, are higher than model estimates. The stock is currently selling in the $99 range with almost 37 million shares changing hands.

Apple Inc. is still a solid corporation and these emerging issues could make it more difficult for the company to do business going forward. Increased taxes would certainly affect the bottom line, while market downgrades will ultimately make it more expensive for the company to raise capital.

By Hans Benes

Image courtesy of Ilia Junehug – License

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Sources:

Benzinga
International Business Times
Tech Insider

17 Responses to "Apple Inc Has Emerging Issues"

  1. XG   October 7, 2014 at 7:53 pm

    Don White hit the nail on the head… And I suspect this is just more corporate slander promoted by the sleazy Koreans who not only steal intelectual property and get away with it but who engage in media smear campaigns. Yep, looking at you Samsung.

    Reply
  2. XG   October 7, 2014 at 7:46 pm

    Deutche bank analysts should be called duche bank analysts if their sole purpose us to cover a company like Apple and think that all the new products have been announced for the year when Apple has a press conference in about a week where it is rumored that a new iPad Air and new larger iPad Pro will be announced.

    Reply
  3. Laughing_Boy48   October 7, 2014 at 12:49 pm

    When you really think about it, why should increasing Wall Street expectations of a company lower the value of a company that exceeds internal company expectations and practically crushes all the competition around them? This is just pure stupidity for Wall Street investors to keep raising the bar for Apple to impossible levels. Revenue, profits and consumer demand are what should make a company valuable. Apple is selling every iPhone it makes and the demand is still sky-high. I’m only saying that these so-called Wall Street investors make a company that will be selling close to 80 million high-end devices appear like any company can do it. Apple has proved itself untouchable as a money-making company and yet it still can’t exceed Wall Street’s expectations? That doesn’t make any sense at all. These bloggers are digging deep to find problems for Apple that will have hardly any impact on the company’s business of sales.

    Reply
  4. Tara A   October 7, 2014 at 11:18 am

    are people still buying icrap (aka value added products developed by other companies marked up 1000%)

    –Sent from my Android–

    Reply
  5. CP (@cp7)   October 7, 2014 at 9:15 am

    Hans, sir, you don’t know what you’re talking about.

    Reply
  6. RI Waterman   October 7, 2014 at 8:28 am

    Great comment, Don White. I was going to post essentially the same thing.

    “While effective streaming revenues are not a major issue to the company’s bottom line, a larger iceberg lies ahead. It could find itself liable for $8 billion in back taxes to the European Commission (EC).”

    I don’t think the author understands what the EC can and can’t do, and the author certainly doesn’t understand what the potential tax liability could be for Apple. IF there is any, it will be much less than one billion dollars, way way less than Hans states.

    Using Sherri SCribner’s “analysis” is also humorous since she has not factored in many new business opportunities for Apple as well as new products coming in 2015 AND the present huge demand for the iPhone 6 and 6+.

    Reply
  7. don white   October 7, 2014 at 7:05 am

    Sounds like the author woke up from a long bender and decided to write an article about things he doesn’t know very much about.

    Reply
  8. mds   October 7, 2014 at 5:10 am

    These are not emerging issues; they are emerged. and like most others will be resolved and AAPL absolved.

    Reply
  9. Grant   October 7, 2014 at 2:18 am

    The analysis of the EU situation is incorrect, premature and speculative. The EU is angry at Ireland, not Apple. Obama and the US senate have nothing to do with the issue. In any case, a resolution is years away if ever.

    Deutsch bank did lower their price target – BY $3!!! Hardly a big change.

    And the statement “The company has also announced all of its new products to the year’s end.” is just flat out WRONG. There is an event this month that is expected to see the release of new iPads, new iMacs, a new operating system and possibly more. Where do these writers get there information?

    Reply
  10. SeanD   October 7, 2014 at 1:52 am

    Could this, could that. What baloney. Just another meaningless piece of garbage from another meaningless publication.

    Reply
  11. Sultano   October 6, 2014 at 11:50 pm

    This deramping with BS no news will continue, daytraders learned that to make money on bogus news is the easiest way. Apple needs to announce sales data from China to kill any doubts of being rock solid company.

    Reply
  12. Sultano   October 6, 2014 at 11:45 pm

    Another BS deramping article… Bendgate did not worked out, naked pics did not worked out, now there is another attack. Well well, SHOULDN’T AMAZON AND PAYPAL WORRY ABOUT THE TAX ISSUE TOO? Why don’t we write a nice article abo ut it? OH, THE STOCK OF THESE COMPANIES IS DOWN ALREADY? Idiotic artice part about Beats? Why would Appple need Beats music? It already has iTunes with nice revenue stream.

    Reply
  13. Hans Benes   October 6, 2014 at 8:53 pm

    A common loophole for far too many corporations. It needs to be closed quickly. If companies want to make money here, let them pay their fair tax share. You and I do. And if we don’t, you can be sure that the IRS will be on our case. We’re minnows compared to the giant corporate whales that are skating free.

    Reply
  14. Hans Benes   October 6, 2014 at 8:47 pm

    It may have to do with tax deductible interest and that their $100 billion earns more than the interest they pay on their fully secured loan. That’s what I would do anyway.

    Reply
  15. 1111   October 6, 2014 at 8:06 pm

    Are you stupid? Why would it need to raise capital when it has over 100 billion dollars in cash reserves.

    Reply
    • 11111   October 6, 2014 at 8:47 pm

      Because it doesn’t want to bring the money state-side. As long as the money is off-shore, Some can pretend it doesn’t have money, and avoid paying taxes

      Reply
      • SeanD   October 7, 2014 at 1:54 am

        If the US does not like the situation then change the tax laws. Want to complain about it? Contact you senators and representative.

        Reply

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