Apple Hit with Stock-Drop Class Action Over Allegedly Misleading Statements Concerning iPhone Demand, China Pricing

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Apple finds itself on the receiving end of a proposed class action lawsuit that looks to represent those who bought common stock in the company between November 2, 2018, and January 2, 2019. The 23-page case out of California alleges Apple, CEO Tim Cook, and Senior Vice President and CFO Luca Maestri issued a series of materially false and misleading statements in November 2018 with regard to apparent demand for iPhones and the company’s pricing muscle in China for its new line of hardware, all of which dented the tech giant’s stock prices.

The run-up to Apple’s allegedly false statements roots back to December 2017, when the company fessed up to “throttling” the performance of the batteries in older iPhones by way of software updates. The effect of this, the case attests, was that Apple had “surreptitiously created artificial demand” for new iPhones from consumers who mistakenly thought their phones were in need of replacement due to poor performance. To put out the fire, Apple, in January 2018, offered battery replacements at dramatically reduced prices for certain iPhone users.

Setting the scene a bit further, the lawsuit explains that though Apple has enjoyed unprecedented geographic reach for its products, it sees substantial competition in China, its highest growth market. The case goes on to say that while Apple’s sales revenues have grown in China since even prior to the released of its new iPhones, Chinese smartphone makers have encroached on its territory with “scores of much lower priced smartphones with greater advancements,” which, at the end of the day, affects Apple’s leverage in pricing its products.

Also affecting Apple’s overseas power are billions in tariffs on Chinese products imposed by the Trump administration between April and September 2018, the lawsuit goes on. It was during this time, the case says, that Apple released its pricey new iPhone models—the XR, XS and XS Max—all while Chinese smartphone makers continued to cut at Apple’s market share in the country. Put simply, the high-priced new iPhones, strength of the U.S. dollar and slumping Chinese economy allegedly “placed the iPhone out of reach of many Chinese consumers,” who the case notes had access to a number of less expensive yet technologically comparable smartphones.

In November 2018, Apple, according to the lawsuit, issued to shareholders a series of misleading statements in which it knew yet failed to disclose—or deliberately disregarded—that:

Apple’s mid-point first-quarter 2019 revenue guidance released on November 1, 2018, was $1.9 billion lower than what the market expected, the lawsuit states, arguing that Apple’s statements during the relevant time period served to prop up the market price of its stock. After the close of trading on January 2, 2019, Cook reportedly announced that Apple would, for the first time during his tenure, miss its public revenue projections. News of this revelation caused Apple stock to plunge more than $15 per share, according to the complaint.

The lawsuit can be read in full below.