Apple investor sues over iPhone sales losses in China

On the same day Apple Inc. and Qualcomm Inc. settled their massive litigation war in the Southern District, Apple investor filed a major securities class action against the iPhone maker in the Northern District.

Brought by the City of Roseville Employees' Retirement System, the complaint claims Apple violated federal securities laws and made materially false and misleading statements aimed at deceiving purchasers of Apple common stock. Among other claims, they say Apple deliberately disregarded the impact of the U.S.-China trade war on iPhone sales in China, Apple's most lucrative market after the U.S. and Europe. City of Roseville Employees' Retirement System v. Apple Inc., 19-CV2033 (N.D. filed April 16, 2019).

According to the complaint filed by Shawn A. Williams of Robbins Geller Rudman & Dowd LLP, Apple shocked the market in January 2019 when it announced it had failed to meet its quarterly revenue forecast for the first time in 15 years and by $9 billion.

In a letter to investors, Apple's CEO Tim Cook reported revenues of approximately $84 billion, well below original guidance for the quarter. Investors had expected revenues between $89 billion to $93 billion as Apple had projected weeks before when its chief financial officer, Luca Maestri, said Apple was, "enter[ing] the holiday season with [its] strongest lineup of products and services ever," according to court documents.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China," Cook wrote in the letter.

He admitted that in addition to macroeconomics, sales were likely hurt when Apple discounted the cost of certain iPhone replacement batteries. In 2018 Apple reduced battery prices from $79 to $29 in attempts to appease consumers following the company's admitted intentional throttling of iPhone battery power in certain iPhones the year prior.

Investors claim the battery "throttling" created an artificial demand for new iPhones from consumers who thought their poorly performing phones were outdated. When the prices dropped, many consumers opted to buy replacement batteries rather than entirely new iPhones.

Following the announcement, Apple's common stock price fell $15 per share from $157.92 on Jan. 2, 2019 to $142.19 on Jan. 3, 2019.

Since the suit was filed in Oakland's federal court, U.S. District Judge Yvonne Gonzalez Rogers has issued summons for Cook and Maestri, who are both named defendants.

According to court documents, Maestri made statements designed to, "mask declines in unit sales of the company's flagship product," when he and Apple told investors during a November 1, 2018 conference call that Apple would no longer disclose unit sales for iPhones and other devices.

"Given the rationale on why we do not believe that providing unit sales is particularly relevant for our company at this point, I can reassure you that it is our objective to grow unit sales for every product category that we have," Maestri said, according to the complaint. "But as I said earlier, a unit of sale is less relevant today than it was in the past."

While an exact damages amount is not mentioned in the complaint, it seeks to recover damages through the Exchange Act, on behalf of anyone who purchased Apple stock between Nov. 2, 2018 and Jan. 2 2019. The complaint implied "hundreds of thousands of investors" have suffered economic losses.

Both Apple and the attorneys for the retirement system were unavailable for comment Thursday. The initial case management conference is set for July 15.