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.

  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.

  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.

  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–

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

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

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