A lawsuit filed against Apple over 2018 comments that CEO Tim Cook told investors on an analyst call has reached a $490 million preliminary settlement.
Cook’s comments allegedly defrauded shareholders because they concealed a projected falling demand for iPhones in China. After these comments, investors purchased shares of Apple’s stock that they might otherwise not have and later lost money.
Settlement Filed
On March 15, 2024, the settlement for the suit against Apple was filed in the U.S. District Court in Oakland, California. The lawsuit settlement will need approval from US District Judge Yvonne Gonzalez Rogers before it can be made official.
If Judge Rogers is going to reject the settlement proposal, they will need to provide a valid reason that can be redressed by the affected parties.
Cook’s Comments
On the analyst call that took place on November 1, 2018, Cook was talking to investors about market pressures in various countries. He mentioned the difficulty the iPhone was having in Brazil, India, Russia, and Turkey. However, he also said, “I would not put China in that category.”
Yet, just days after this call, Apple reportedly told its suppliers to scale down iPhone production.
Apple’s Announcement
One event that prompted the lawsuit to be filed was a January 2019 announcement from Apple.
Just a couple of months after the analyst call, Apple made an unexpected announcement that its quarterly revenue would be falling, with China being one of the culprits blamed. The quarterly earnings forecast for Apple would be decreasing by as much as $9 billion.
Significance of the Announcement
In the wake of the announcement, Apple’s shares fell by a whopping 10% the following day. In just that one day, Apple lost $74 billion of market value.
This is significant because it was the first time Apple had announced a lowered revenue forecast since the original iPhone was released in 2007.
Two Months
The crux of the case seemed to revolve around the two months between the analyst call and the Apple announcement. The lawsuit represented a class of shareholders who had bought Apple shares in those two months.
Issues were raised about the short amount of time between positive and negative news about China being reported. The judge on the case found it plausible that Apple knew about the possibility of falling demand at the time of the call. The judge had previously refused an attempt to dismiss the lawsuit.
Apple’s Profits
While $490 million sounds like a large amount of money to settle a lawsuit over, Apple’s profits far exceed this number.
In the previous fiscal year, Apple had around $97 billion in net income. This means if you do the math on the settlement payout, it doesn’t even take away two days of profit from Apple.
Lawyer’s Fees
Reportedly, the lawyers for the shareholders may be requesting fees up to 25% of the amount of the settlement.
The amount a lawyer gets in a case can vary widely in America. Typically, a lawyer will charge hourly or be on a retainer fee. In California, business litigation lawyers can make anywhere from 30-40% of the financial outcome.
iPhone Sales in China
China is Apple’s largest overseas market and it has been struggling in the region in recent times.
This year, Apple’s market share in the market dropped to just 16% in the country. This drop moved Apple from second in the market down to fourth. In 2023, the company previously had a 19% market share.
Why Are iPhone Sales Dropping in China?
According to the Counterpoint report, the blame for falling Chinese iPhone sales is the lack of features on the iPhone 15.
“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now,” said senior analyst Mengmeng Zhang.
Stiff Competition
Another reason Apple is struggling in the Chinese market is increased competition from established brands like Huawei and Xiaomi.
“Primarily, it faced stiff competition at the high end from a resurgent Huawei while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi,” Zhang said.
Tough for CEOs
The outcome and settlement of the case underscores how costly it is to make a mistake as a big CEO. One allegedly wrong comment in an analyst call by Cook set circumstances into motion that cost Apple nearly $500 million in a lawsuit settlement.
That amount is nearly 8 times what Cook made in 2023 for his salary. Reportedly, he made $63 million dollars last year.
