Mikey Campbell
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.
Today's class action filing is similar in scope to two complaints lodged in April, which also claim Apple misled investors with largely positive forward looking statements.
Andrew Orr
Amber Neely
William Gallagher
Christine McKee
AppleInsider Staff
14 Comments
Failing to predict the future actions that stimulated the trade war is not the same as deliberately misleading. At the time of the earnings call, the XR has only been available for 2 weeks. It's likely that demand exceeded supply at that point in time. Also Tim Cook clearly acknowledged that they did not anticipate the need to lower the price of the XR in China quickly enough. In the next quarter they lowered the price and demand increased. A casual look at AAPL, or nearly any publicly traded asset, shows that the market tends to excess to the upside or downside. That is exactly what happened with AAPL. Investor need to think like Warren Buffett who buys stocks to hold for five years or more, and ignore volatility.
Rent seekers of the world unite. 😕
That is why it is called investing. There are always risks. Nothing is written in stone no matter who you listen to.
These only stick if the operators either already knew about the challenges or misreported facts. Neither of these could be satisfactorily proven, but very easily defended, especially as the downturn affected the entire industry. (With Apple proportionally less affected than other vendors.)
Even just this week we have observed increased trade tensions between the US & China. This will likely have a run on effect to some of Apple's products. The difference now is that Apple have begun to factor the risk of international trade disputes into their guidance.
Prior US/China relations had significantly more stability. Instability here will be the new normal for quite some time. We can anticipate Apple to further develop their operations outside of China. (E.g. India)
Lawyers are very profitable business. They just won two billion dollars for a client.