Tim Cook and his fellow Apple board members are facing their fourth lawsuit for alleged breaches of the law in respect of the original earnings guidance issued for Q1 2019…
Apple originally guided revenue in the $89 billion to $93 bilion range for its first fiscal quarter of 2019. In a rare revision, it later wrote to shareholders to say that it was instead forecasting around $84 billion, some $5 billion below the bottom end of its original guidance. AAPL shares dropped 9% in response to the news.
The company blamed fewer iPhone upgrades following its battery replacement program, alongside fewer carrier subsidies, unfavorable currency movements increasing prices in some markets, and trade tensions with China.
In the event, the revised guidance proved accurate, with Apple reporting $84.3 billion of revenue.
Apple board members sued
Patently Apple reports that a new lawsuit has now been filed, accusing the Apple board of breach of fiduciary duty and violation of federal securities laws by misrepresenting the company’s position at the time the original guidance was issued. It follows three other lawsuits for the same thing.
This is a shareholder derivative action brought in the right, and for the benefit, of Apple against certain of its officers and directors seeking to remedy Defendants’ violations of state and federal law that have occurred from August 1, 2017, through January 2, 2019 (the “Relevant Period”), and have caused, and continue to cause, substantial harm to Apple, including monetary losses and damages to Apple’s reputation and goodwill […]
During the Relevant Period, the Defendants misrepresented and/or failed to disclose multiple material factors that negatively impacted Apple’s iPhone sales and revenues, including that, inter alia: (a) consumer demand for new iPhone models was negatively impacted by Apple’s sales of heavily discounted battery replacement program for older iPhone models, as customers chose not to upgrade or to delay same; (b) macroeconomic factors, including an escalating trade war with the United States, increased competition from cheaper smartphones, and sluggish economy, were likely to negatively affect, and were doing so, Apple’s iPhone sales in China; and (c) that as a result of the foregoing, the Defendants lacked a reasonable basis when issuing positive iPhone sales and revenue guidance for the first quarter of 2019, and when publicly denying the existence and negative impact of the foregoing.
In other words, the lawsuit argues that by first issuing optimistic guidance, and then correcting it, the board had damaged the company’s reputation and caused its stock price to fall. Shareholder John Votto says he is therefore bringing the lawsuit on behalf of Apple, Inc, against its own board of directors.
The lawsuits seem unlikely to succeed. Clearly the board issued the original guidance in good faith at the time, and the share price would still have fallen had the low guidance been issued in the first place — just a bit earlier.
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