Apple Roundup: SAP Deal, Spotify Challenge, 5G, Market Share

Last week saw Apple (NASDAQ:AAPL) expanding its partnership with SAP (NYSE:SAP) , Spotify (NYSE:SPOT) challenge the Apple tax in the EU, Apple scooping up Intel (NASDAQ:INTC) 5G employees while seeing its iPhone market share continue to slide. Here are the details-

Expanding Relationship with SAP

Apple has gradually been increasing its presence at the enterprise by pairing up with industry heavyweights like IBM (NYSE:IBM) and SAP. The company recently announced that its relationship is now expanding beyond the enterprise apps for Apple devices used by SAP employees.

The expansion enables the leveraging of data on the SAP HANA relational DBMS with Apple’s proprietary machine learning technology so customers using SAP HANA can develop intelligent solutions (apps). This is in keeping with Apple’s long-held stance on privacy and security because it empowers businesses to build the apps themselves using their own data and determining things like accessibility for themselves.

Of course, Apple’s benefits run deeper because the companies will be providing a software development kit (SDK) and training academy for developers, partners and customers that build these apps natively for iOS mobility devices like iPads and iPhones. Native apps are tailored to the devices for which they are built, so they are generally quicker and more efficient.

So essentially, the deal will promote the sale of Apple mobility devices among SAP’s enterprise customers while putting its machine learning technology at the front and center of enterprise app building. The fact that the devices have leading-edge augmented reality capabilities is an added benefit because it facilitates the creation of operational apps in retail, maintenance and a host of other environments, as demonstrated at SAP’s Sapphire annual U.S. user conference where Apple’s Tim Cook shared stage with SAP CEO Bill McDermott.

Spotify Complaint to the EU

For some time now, Spotify has been vocal about its dissatisfaction with the way Apple takes a 30% cut off its subscription revenue making it difficult to compete with the iPhone maker. But earlier this year, it took the matter to the EU’s competition commission.

The Swedish company’s complaint makes sense and appears relevant because 1) Apple is no longer just a distributor but a direct competitor in the music business with its Apple Music. So its taking a substantial cut of a rival’s revenue on the pretext of providing platform maintenance sounds anticompetitive.

Second, Spotify’s claim that Apple’s charges are high enough to ensure that it won’t make a profit unless it charges more than Apple also has merit. Unhealthy competition has the effect of increasing prices for consumers, which seems to be happening here.

Apple claims that the fees fall to 15% in the second year, which doesn’t appear to be a strong argument since companies are most cost constrained in the first year when they try to retain a customer just acquired.

Of course Spotify is no saint, so artists have for long had complaints about their per-stream income. The point is, Apple for all it saintly attitude toward artists, isn’t much better.

Spotify is not alone in this. Other app makers refer to Apple’s cut as Apple tax because it often isn’t a high-margin business that they are selling. The music business in particular leaves next to no room for profit because of the amount that has to be paid to record companies and other middle men.

Spotify’s argument appears spot on, but the EC has reserved comment. But a spokesperson told CNBC, “The Commission has received a complaint by Spotify, which we are assessing under our standard procedures."

Poaching Intel Talent

Apple may have made peace with Qualcomm (NASDAQ:QCOM) but eating humble pie and paying ransom ($4.5 billion in damages) clearly isn’t its cup of tea. So while parting ways with Intel, the company picked up some key personnel on Intel’s 5G team. It has now come to light that Messay Amerga, Intel’s 5G chief has taken a position at Apple. He follows Umashankar Thyagarajan, a senior director and project engineer on the same team, who joined Apple in February.

Losing Smartphone Market Share

The smartphone market remains in the doldrums according to market research firms IDC and Counterpoint Research. Both firms said the market declined in the first quarter, but IDC estimates a 6.6% decline, while Counterpoint arrives at 5%.

The reasons for overall weakness are the same: phones are getting more capable and pricey and newer models don’t have enough innovation to stimulate a purchase; 5G is expected to do something about this.

In the meantime, it’s only the Chinese brands that appear to be growing because of their flexibility and ability to churn out high-volume products at every price band. This allows them to expand internationally, both in emerging markets like India and the developed markets of Europe.

Exact market share numbers vary somewhat between the firms but Apple continues to look bad according to both, slipping to third spot behind Samsung (KS:005930) and Huawei and Xiaomi, Oppo and Vivo close at its heels.

IDC estimates: Samsung 23.1%, Huawei 19.0%, Apple 11.7%, Xiaomi 8.0%, Vivo 7.5%, OPPO 7.4%, Others 23.2%.

Counterpoint estimates Samsung 21%, Huawei 17%, Apple 12%, Xiaomi 8.0%, OPPO 8%, Vivo 7%, Others 29%.

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