A federal judge has ruled that Apple has to face a lawsuit accusing the company of hiding the fact that iPhone demand in China was declining, leading to “tens of billions of dollars in shareholder losses.” The specific focus is on the comments made by Apple CEO Tim Cook during Apple’s fiscal Q4 2018 earnings call, Reuters reports.
As a recap, Apple was forced to revise its Q1 2019 earnings guidance due to “fewer iPhone upgrades” and significant demand problems in China. Apple stock dropped drastically after that announcement, with this representing one of the rare times Apple has had to revise its guidance.
During the preceding Q4 2018 call, Cook touted strong demand for iPhone across the board leading into the holiday shopping season.
Cook had said on the analyst call that the iPhone XS and XS Max had a ‘really great start,’ and that while some emerging markets faced downward sales pressures, ‘I would not put China in that category.’
US District Judge Yvonne Gonzalez Rogers says it’s “implausible” that the Apple CEO did not know demand in China was dropping. The shareholders also claim that just a few days later, Apple ordered manufacturers to slow down iPhone production rates and slowdown shipments:
‘Absent some natural disaster or other intervening reason, it is simply implausible that Cook would not have known that iPhone demand in China was falling mere days before cutting production lines,’ Rogers wrote.
Furthermore, during that same Q4 2018 earnings call, Apple announced that it would stop reporting unit sales for its hardware products as well. Judge Rogers says that this decision “plausibly suggests that defendants expected unit sales to decline.”
Rogers dismissed most of the claims in the shareholder lawsuit, but did rule that shareholders “can sue over Chief Executive Tim Cook’s comments touting strong iPhone demand.”
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