Apple, executives face another class action over misleading financial statements
Apple's almost universally positive financial outlook, offered in investor conference calls following quarterly earnings reports, are again under scrutiny as a class action complaint takes issue with comments made by CEO Tim Cook and CFO Luca Maestri in the quarter leading up to a revenue guidance correction in January.
The complaint, lodged with the U.S. District Court for the Northern District of California, homes in on forward-looking statements regarding Apple's business in China — specifically iPhone — for the important holiday quarter of 2018.
In forecasts presented during a conference call last November, both Cook and Maestri touted a strong product lineup expected to fuel first fiscal quarter sales between $89 billion and $93 billion. Riding high on a new slate of iPhone XS and XR handsets, which were at the time already up for sale, Apple told investors to anticipate a record-breaking quarter.
Beyond reiterating prepared guidance, Cook and Maestri emphasized a positive outlook in fielding questions from analysts. Specifically, Cook dismissed concerns of "macroeconomic uncertainty" in emerging markets like China, citing Apple's "very strong" performance leading into the holiday season. The executives also failed to recognize the brewing U.S.-China trade war.
That take was ultimately proven incorrect, as economic headwinds in the burgeoning Chinese market contributed to what would result in quarterly revenue of $84.3 billion, well below initial guidance.
The suit also claims Apple failed to account for knock-on effects of its iPhone battery replacement program, instituted in 2017 to allay concerns of handset throttling. It was later learned that Apple replaced some 11 million iPhone batteries, up to 11 times more than anticipated, allowing users to hold on to their smartphone instead of buying a new model.
Apple's decision to halt reportage of unit sales is also a bone of contention, with plaintiffs claiming the move was designed to mask declines of the company's flagship product.
The rosy outlook proffered by Cook and Maestri caused Apple's stock price to artificially inflate during the class period starting Nov. 2, a day after the company released earnings for the last quarter of 2018, until a guidance revision was released in early January, the suit alleges. Shareholders were consequently impacted by the "false and misleading statements" when the revision down was announced and Apple shares fell.
Citing violations of the Securities and Exchange Act, the complaint seeks class status, unspecified damages and legal fees.