Apple reaches tentative settlement in class-action lawsuit alleging the company misrepresented the state of it business

Apple has reached a US$490 million tentative settlement to resolve allegations that in late 2018, the company misrepresented the state of the business in Greater China, its most important growth market at the time, reports ISS Insights.

Last month agreed to pay US$490 million to settle a class-action lawsuit that claims CEO Tim Cook defrauded shareholders by concealing falling demand for iPhones in China. The lawsuit claimed that Apple was  misleading in its generally rosy predictions for upcoming financial results due to slowing iPhone sales and other issues. 

It claims that the misrepresentations alleged would tend to induce a reasonable investor to misjudge the value of Apple common stock. The lawsuit was filed after Apple’s unexpected announcement on Jan. 2, 2019, that the iPhone maker would slash its quarterly revenue forecast by up to $9 billion, blaming U.S.-China trade tensions.

According to ISS Insights, the class action complaint further alleges the following:  

• In 2018, China began experiencing slowing economic growth, compounded by tariffs imposed on Chinese goods imposed by the Trump Administration in April, July, and September 2018.
• Geopolitical tensions occurred just as Apple introduced in September 2018, two new expensive iPhones, the iPhone XS and the iPhone XR, leading analysts to question whether they would sell in the economic climate.
• Nevertheless, on November 1, Apple released its revenue guidance for 1Q19 at “a new all-time record” of $89 billion to $93 billion. Later that day, Apple held a conference call, where analysts expressed concerns about deceleration in China.
• Apple CEO Tim Cook allayed analyst concerns on the November 1 conference call, stating he would not put China in the category of emerging markets like Turkey, India, Brazil, and Russia. Cook further added business in China was “very strong” last quarter, and Chinese iPhone sales had gotten off to a “really great start.”
• Four days after the call, Nikkei Asian Review reported that Apple cancelled its “production boost” for the iPhone XR. On December 4, in what was interpreted as a “fire drill” response to poor iPhone sales, Bloomberg noted Apple had moved marketing staff to sales.
• On January 2, 2019, Cook sent a letter to investors explaining Apple will miss its earnings guidance by up to $9 billion, because “it did not foresee the magnitude of the economic declaration, particularly in Greater China.”