Damage to Apple from potential loss of Google deal likely limited - Jefferies

Investing.com -- Apple's exclusive business deal with Alphabet (NASDAQ:GOOGL ) could be at risk as the US Department of Justice mulls potential sanctions against the Google parent, according to analysts at Jefferies.

Earlier this month, the DOJ announced that it was mulling possible sanctions against Google, including a break-up of the search giant, following a landmark antitrust case that found the group guilty of abusing its dominant market position.

The DOJ is "considering behavioral and structural remedies" that would prevent Google from using products like its web browser, app store or operating system to advantage its search business over its competitors, according to a federal court filing. Officials also suggested that Amit Mehta, the US judge presiding over the case, could force Google into revealing the underlying data used to build its search engine and artificial intelligence products.

One other rectification could be to prohibit Google from paying Apple (NASDAQ:AAPL ) to be the exclusive search engine for its iPhone handset, the Jefferies analysts said in a note to clients.

Apple has been receiving billions of dollars annually from Google as part of the arrangement. In its 2024 fiscal year, the Cupertino-based tech titan is seen raking in $25 billion from the deal, the Jefferies analysts projected. They noted that the expected size of the agreement equates to 6.3% of Apple's group-wide revenue or, because it comes at no cost to the company, a fifth of its pretax profit.

However, they said the potential damage to Apple from a ban on its Google business will likely be limited "while [the] timing of a final decision [is] potentially far out." They estimated that, because of a long anticipated appeal process, it could be anywhere between three to eight years before a final settlment is reached.

"Moreover, although an exclusive deal would unlikely be allowed, the [DOJ] may not stop [Google] from having a revenue share agreement with [Apple], as long as it is not an exclusive deal and [Apple] would allow other search engines to be available for users to choose from," the analysts said.

They estimated, should Apple lose a third of revenue from Google, their discounted cash flow projection for Apple would be roughly 8% lower.

The iPhone 16 and Apple's artificial intelligence ambitions are likely to be "bigger near-term drivers" of the business, the analysts added.

Source: Investing.com