A few sentences from Tim Cook, Apple's CEO, in a conference with analysts in November 2018 have been very expensive for the company. On the call, Cook confused investors by talking about the strength of iPhone demand in China. However, in January 2019, the price plummeted after a profit warning due precisely to the weakness of the Chinese market. A group of investors filed a class action lawsuit and Apple has agreed to pay $490 million (€450 million) to settle it. This is the largest agreement of this type reached by the company.
The case highlights the risk that it entails for managers to give forecasts of results that are not met and of not including in the risk chapters of their reports before the Securities and Exchange Commission (the SEC) possible setbacks for the evolution of the results. business.
The lawsuit recalled that, in May 2018, Cook assured investors that the iPhone was “the most popular smartphone in all of China.” And then, on the November 2018 call, Apple's boss stated that while macroeconomic uncertainty in emerging markets was affecting business prospects, China was not part of that trend because Apple had experienced growth there. double digits there in the last quarter.
“The emerging markets where we are seeing pressure are markets like Turkey, India, Brazil, Russia, they are markets where currencies have weakened in the last period,” Cook said, according to the transcript contained in the lawsuit when presenting results. in November 2017. “In relation to China specifically, I wouldn't put China in that category. Our business in China was very strong last quarter. We grew 16%, which we are very happy with. The iPhone, in particular, had very strong double-digit growth there. Our other products category was also strong, in fact, a little stronger even than the company's overall figure,” he added.
Additionally, the lawsuit stated that risk warnings in Apple's brochures and reports (certified by Cook and Chief Financial Officer Luca Maestri) identified generic risks, such as macroeconomic uncertainty, but did not identify China-specific risks.
The letter noted that Apple stopped production lines days after that conference with analysts due to weak demand, but that the company only warned of the poor prospects in China in January 2019, in a communication to investors. At that time, the company lowered its revenue forecasts to $84 billion and the stock market fell 10%. Before, its estimate was between 89,000 and 93,000 million. It was the first time it had cut forecasts in more than 15 years.
The lawsuit, led by a British pension fund that was a shareholder in Apple (Norfolk Pension Fund), also pointed out that both Cook and Maestri had sold large blocks of shares before the notice that sank the company's price.
The case was being processed before a court in San Francisco (California). In a statement cited by British media, the Norfolk pension fund said it was “very proud of this recovery for investors.” “We are aware that we are pension administrators trusted by thousands of families and individuals. When and where justified, we will take decisive action to recover losses when our unitholders' investments are harmed by fraud,” he added.
Apple accepts the payment without acknowledging that it violated securities laws, claiming that “continued litigation would be protracted, excessively burdensome, expensive and distracting.”
The agreement comes just at a time when the evolution of the Chinese market is once again the company's main concern in the face of competition from Huawei and geopolitical tensions between the United States and China. According to the independent consulting firm Counterpoint, iPhone sales plummeted in China by 24% in the first six weeks of the year.
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