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Taking Bites Out Of Apple

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For the first time since Steve Jobs resumed top place at technology giant Apple Computers, the company is experiencing a round of investigations and lawsuits that are putting its equity price under pressure. In the past 12 months, Apple has gone from trading at just under $35 a share to a high of $85 in Juanuary, 2006. Most of this success has been as a result of Apple’s deliberate self-styled re-invention from a software and computer manufacturer to a leading player in the music industry which has so far resulted in an unprecedented growth in sales of its iPod and iTunes brands.

Like many U.S. technology giants, however, Apple is beginning to find that success comes at a price. The first signs of trouble came from the technology community itself, with complaints about the inoperability of Apple’s products with outside systems. There have been attempts to overcome this, with most recently a competition aimed at hackers to install Windows on Apple’s Macintosh computer, which was cracked twice in less than 24 hours. French lawmakers recently voted overwhelmingly to force Apple to open its digital music format used by iPod and iTunes to competitors, a move that endangers the crucial franchise Apple holds over the disruptive technology: in a recent survey, over 80% of participants identified an MP3 player as an iPod first, rather than by its generic term or the brand names of any of its competitors’ products.

Last month the European commission announced it was investigating Apple’s pricing of music sold via its online music store, iTunes, alleging that price discrepancies between the U.K., Europe, and the United States may be unfair to those who are paying with British pounds. If legislation is passed as a result of the investigation, it is likely to have a wide-ranging impact on Apple’s currently cushy pricing autonomy, which has enabled it so far to show profit growth significant to Wall Street analysts’ and traders’ evaluation of the company’s stock.

Then CEO Steve Jobs was forced to dispose of $296 million of Apple stock last week in order to cover a tax bill for the stock which has more than doubled since the firm split its stock last year, leaving Apple stock trading down just below 1% on the day.

And now, the technology giant faces the UK-based Apple Corps Ltd., which represents the Beatles’ music interests in court later this week over the use of the iconic Apple logo. Apple Corps claims Apple Computer Inc. is violating a 1991 agreement barring the latter from using the Apple logo in the marketing of its music products. This is the third time Apple Computer has come up prominently against former Beatle Paul McCartney over copywright issues, and a verdict in favour of Apple Corp may cost Apple Computer tens of millions of dollars in lost music sales. Over seventy percent of current music downloads are sold through Apple’s iTunes, and iPod sales accounted for roughly the same in market share of MP3 players sold last year.

Such are the headaches of running a business that is treading hard over the toes of long-established business practices. The headaches are crucial to the continuity of Apple’s success however, because if the radical New Economy/NewMedia giant can sustain a sufficiently high equity price and snub combative parties in the courtroom over the next few months, it will send a clear signal to the market and to traditional competitors such as the ailing EMI that the franchise over the music industry has now changed hands.

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About Daniel M. Harrison

  • It seems like such a silly fight since they could make money easily off the Beatles songs.