Apple agrees to pay $450 million for Tim Cook’s comments to analysts about China companies

Some sentences of Apple CEO Tim Cook in a conference with analysts in November 2018 have been very costly 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 dropped after a profit warning due to Chinese market weakness. 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 its kind made by the company.

The case highlights the risk that managers face in giving forecasts of results that are not met and include potential setbacks for developing results in the risk chapters of their reports to the Securities and Exchange Commission (SEC). Don’t do it. ,

The lawsuit recalled that, in May 2018, Cook had assured investors that the iPhone was “the most popular smartphone in all of China.” And then, on a November 2018 call, Apple’s boss said that while macroeconomic uncertainty in emerging markets was impacting business prospects, China was not part of that trend as Apple had experienced double-digit growth there the previous quarter. .

“The emerging markets where we are seeing pressure are markets like Turkey, India, Brazil, Russia. “These are markets in which currencies have weakened over the past period,” Cook said, according to a transcript included in the lawsuit, when presenting results in November 2017. “With regard to China specifically, I wouldn’t put China in that category. Our business in China last quarter was very strong. We grew 16%, which we’re very happy with. In particular, the iPhone sales there are double There was very strong growth in the numbers. Our other product categories were also strong, in fact, even slightly stronger than the company’s overall figure,” he said.

Additionally, the lawsuit states that risk warnings in Apple’s brochures and reports (certified by Cook and Chief Financial Officer Luca Maestri) identified general risks such as macroeconomic uncertainty, but not China-specific risks.

The letter said Apple shut down production lines a few days after that conference with analysts due to weak demand, but the company had only warned about poor prospects in China in January 2019 in a communication to investors . At that time, the company cut its revenue forecast to $84 billion and the stock market fell 10%. Earlier its estimate was between 89,000 to 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 revealed that both Cook and Maestri had sold large blocks of shares before notice causing the company’s price to collapse.

The case was going on in a court in San Francisco (California). In a statement quoted by British media, the Norfolk Pension Fund said it was “very proud of this recovery for investors.” “We know that we are the pension administrator trusted by thousands of families and individuals. When and where appropriate, we will take decisive action to recover losses if our unitholders’ investments are harmed by fraud.”

Apple accepted the payment without admitting that it violated securities laws, claiming that “continued litigation would be lengthy, overly burdensome, costly, and distracting.”

The deal comes at a time when Chinese market development is once again the company’s main concern amid competition from Huawei and geopolitical tensions between the United States and China. iPhone sales in China fell 24% in the first six weeks of the year, according to independent consulting firm Counterpoint.

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