Jefferies: DOJ antitrust win over Google ‘likely’ to kill $25 billion iPhone research deal with Apple

Google is “very likely” to be barred from paying Apple billions of dollars each year to ensure its search engine is enabled by default on iPhones after its stunning loss to the Justice Department in a landmark antitrust trial, according to analysts at Jefferies .

Judge Amit Mehta ruled in August that Google has an illegal monopoly over Internet search and specifically called the firm’s habit of cutting checks for default status — including $20 billion to Apple in 2022 alone — a tactic anti-competitive. The judge is expected to announce the remedies by next summer.

“A very likely fix is ​​to stop GOOG from paying AAPL to be the exclusive iPhone search engine,” Jefferies analysts said in a note to clients on Wednesday.

Jefferies estimated Apple earned $25 billion in payments from Google in fiscal 2024, which would be equivalent to 20% of the iPhone maker’s pretax profit.

However, any impact on Google and Apple’s bottom lines is likely far in the future. Google has already said it is appealing Mehta’s initial ruling in the search lawsuit, while CEO Sundar Pichai has warned the court battle will take “years” to resolve.

The final outcome “could take three to eight years for the final settlement to be decided based on precedents,” Jefferies analysts said.

“Furthermore, although an exclusive agreement is unlikely to be allowed, the DOJ may not prohibit GOOG from having a revenue sharing agreement with AAPL, as long as it is not an exclusive agreement and AAPL will allow the engines other search engines to be available for users to choose from,” the note added.

In a filing last week, the DOJ said it is considering whether to ask Mehta to order the breakup of the Google empire by stripping it of assets such as its Chrome browser, its Google Play app store or its operating system. its Android operating system.

The judge could also force Google to stop payments to smartphone makers like Apple and carriers like AT&T, or require Google to share relevant search data, indexes and patterns with its rivals.

Google hit back, describing the DOJ’s legal framework as “radical” and claiming its proposals go “well beyond the specific legal issues in this case.”

“Government interference in a fast-moving industry could have unintended negative consequences for American innovation and American consumers,” Google vice president of regulatory affairs Lee-Anne Mulholland said in a blog post. “We look forward to making our case in court.”