Apple has agreed to settle a class action lawsuit for $490 million. The lawsuit alleged that Apple CEO Tim Cook defrauded shareholders by making a misleading statement about falling demand for iPhone in China.
Reuters reported on a court filing about the settlement earlier today. The proposed settlement will need to be approved by U.S. District Judge Yvonne Gonzalez Rogers in California.
During Apple’s November 1, 2018 earnings call with analysts, Cook said that Apple was facing pressure in some emerging markets with weakened local currencies. While Cook mentioned four countries in his comment, he did not include China on the list.
The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia. These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.
Cook went on to say that he would specifically NOT put China on the list with the other countries:
In relation to China specifically, I would not put China in that category. Our business in China was very strong last quarter. We grew 16%, which we’re very happy with. iPhone in particular was very strong, very strong double-digit growth there. Our other products category was also stronger, in fact, a bit stronger than even the overall company number.
However, in a January 2019 letter to investors, Cook indicated that Apple’s revenue for the fourth quarter of 2018 would come in at around $84 billion, considerably lower than the Cupertino firm’s original guidance of between $89 billion and $93 billion in the quarter. Apple reported quarterly revenue of $84.3 billion on January 29, 2019.
Apple’s share price plunged by approximately 25% between November 1, 2018 and January 31, 2019.
Cook blamed the Greater China region’s slowing economy for Apple’s revenue shortfall in the quarter:
While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.
The letter also included a sentence owning up to the fact that lower-than-anticipated iPhone revenue, primarily in Greater China, accounted for the shortfall:
Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline.
Investors alleged that Cook knew about falling iPhone demand in China during the November 2018 earnings call, but failed to acknowledge it. As is usual in settlements like this one, Apple has denied these allegations and does not admit to any wrongdoing. Apple says it merely agreed to the proposed settlement to avoid additional legal costs and time involved with litigation.