Cupertino, California tech giant Apple recently came under fire in the form of the threat of a class action lawsuit on behalf of its shareholders. The firm handling the action claims that it is investigating the withholding of information pertaining to slowing iPhone sales and Apple generally issuing misleading information to the public. Apple’s shareholders are being asked to join the class action suit. However, it is unknown at this point whether there are any claimants.
On Wednesday, January 2, 2019, Apple stated that its revenue expectations for the first quarter of the year would be around 7 percent lower than it originally expected. This amount equates to approximately $84 billion, but the company originally predicted that it would bring in revenue ranging between $89 and $93 billion. Apple claims the reason for the lower numbers is due to users choosing not to upgrade to new iPhones and the Chinese economy slowing down.
The class action suit comes about as a result of Apple CEO Tim Cook not warning investors of the issue, according to the firm handling the legal action. It states that Apple reported that in its fourth quarter of 2018 conference call on November 1, 2018, Cook said that business in China was very strong during that quarter and that iPhones, in particular, saw a double digit growth in the country. At the same time, however, Apple halted its reports of iPhone sales during that same quarter.
Cook said in interviews throughout 2018 that the United States would resolve the trade issues with China. He did not issue any warnings that these trade wars were adversely affecting business or the sales of iPhones as a whole. In September, Cook spoke with CNBC and said he was optimistic that the US and China would solve the issues and that it could end up being a win-win situation.
Analysts stated they were not surprised by the problems Apple is experiencing with China due to the trade war and other bleak economic aspects. At the same time, they said it was to the extent of which these issues were that caught them off guard. For example, Citi stated that it was surprised by the massive impact of China’s iPhone demand decreasing by such a large number.
Some others believe that Apple managed to get away with ignoring a larger reality about smartphones and that it finally caught up to the company. Apple had the idea of raising the price of its iPhones starting with 2017’s iPhone X and believed it would continue to generate great revenue when users upgraded. However, many of its counterparts that offer cheaper smartphones managed to essentially copy many of the features of that device. As a result, many consumers opted for those phones instead of iPhones.
It could be that Apple was able to see the writing on the wall and decided to hype its numerous services as a way to compensate. Perhaps the company realized that the iPhone might not always remain its top source of revenue.
The firm handling the class action suit against Apple is anticipating that, as a result of stifled sales of the iPhone, there will be plenty of angry investors ready to jump on board. Time will tell what happens with the legal action.