Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 1 of 23
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`ROBBINS GELLER RUDMAN
` & DOWD LLP
`SHAWN A. WILLIAMS (213113)
`Post Montgomery Center
`One Montgomery Street, Suite 1800
`San Francisco, CA 94104
`Telephone: 415/288-4545
`415/288-4534 (fax)
`shawnw@rgrdlaw.com
`– and –
`SAMUEL H. RUDMAN
`MARY K. BLASY (211262)
`58 South Service Road, Suite 200
`Melville, NY 11747
`Telephone: 631/367-7100
`631/367-1173 (fax)
`srudman@rgrdlaw.com
`mblasy@rgrdlaw.com
`
`Attorneys for Plaintiff
`
`[Additional counsel appear on signature page.]
`
`
`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`Case No.
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`CLASS ACTION
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`COMPLAINT FOR VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
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`DEMAND FOR JURY TRIAL
`
`CITY OF ROSEVILLE EMPLOYEES’
`)
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`RETIREMENT SYSTEM, Individually and on )
`Behalf of All Others Similarly Situated,
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`)
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`Plaintiff,
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`vs.
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`APPLE INC., TIMOTHY D. COOK and
`LUCA MAESTRI,
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`Defendants.
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 2 of 23
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`INTRODUCTION
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`Plaintiff City of Roseville Employees’ Retirement System (“plaintiff”), individually and on
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`behalf of all others similarly situated, by plaintiff’s undersigned counsel, alleges the following based
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`upon personal knowledge as to plaintiff and plaintiff’s own acts and upon information and belief as
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`to all other matters based on the investigation conducted by and through plaintiff’s counsel, which
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`included, among other things, a review of Securities and Exchange Commission (“SEC”) filings by
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`Apple Inc. (“Apple” or the “Company”), as well as media and analyst reports about the Company.
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`Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth
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`herein after a reasonable opportunity for discovery.
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`BACKGROUND AND SUMMARY OF THE ACTION
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`1.
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`This is a securities fraud class action on behalf of all purchasers of Apple common
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`stock between November 2, 2018 and January 2, 2019, inclusive (the “Class Period”), seeking to
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`pursue remedies under §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange
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`Act”), and SEC Rule 10b-5 promulgated thereunder.
`2.
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`Apple is a multinational technology company headquartered in Cupertino, California
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`that designs, develops, and sells consumer electronics, computer software, and online services. The
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`Company’s most well-known products include its iconic iPhone smartphones, the iPad tablet
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`computer, the Mac personal computer, the iPod portable media player, the Apple Watch smartwatch,
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`the Apple TV digital media player, and the HomePod smart speaker.
`3.
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`The multiple versions and models of Apple’s iPhone have served as the Company’s
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`flagship product, utilizing Apple’s iOS operating system, powering applications including Siri, an
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`intelligent assistant, and Apple Pay, Touch ID, and Face ID on qualifying devices. Sales of iPhones
`generated approximately two-thirds of Apple’s 2018 revenue.1 Since its original launch in 2007
`through 2015, the Company released, on average, one new iPhone model per year, typically to great
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`fanfare and high demand. Apple also aggressively increased the pricing of its iPhones from the $99-
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`1 Apple’s fiscal year ends in September of each calendar year. Apple’s 2018 fiscal year began on
`September 31, 2017 and ended on September 29, 2018.
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 3 of 23
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`$399 range maintained through 2013 to a top offering price of $1,449 for the Apple XS Max with
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`512 gigabytes in September 2018.
`4.
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`The Company and its products enjoy significant geographic reach, including in
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`emerging markets. Greater China, for example – a region that includes mainland China, Hong Kong,
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`and Taiwan – is Apple’s third-largest market after the United States and Europe, accounting for $52
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`billion in sales in Apple’s fiscal year 2018 (“FY18”), ended September 29, 2018 – nearly 20% of
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`Apple’s total FY18 annual sales. But, while China represents the Company’s highest growth market,
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`China is also among its most competitive. Chinese upstart brands such as Huawei, Xiaomi and
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`Oppo offer similar looking all-screen phones for much lower prices. At the same time that Apple’s
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`iPhone sales revenues were growing in China due to Apple’s outsized price increases, Chinese
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`smartphone manufacturers were launching scores of much lower priced smartphones with greater
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`advancements throughout the Chinese market, thus competing with Apple’s iPhone offerings and
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`diminishing the Company’s pricing power.
`5.
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`In addition, Apple’s business in China is also more susceptible to geopolitical trade
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`maneuvers by the United States and China, and, more recently, tariffs imposed by the United States
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`have also threatened sales (though Apple has sought to deny or minimize any perceived impact).
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`Specifically, on April 3, 2018, the Trump Administration published a list of $50 billion in Chinese
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`products under consideration for a 25% tariff and, on July 6, 2018, implemented the first $34 billion
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`of those import tariffs. On July 10, 2018, the Trump Administration announced a list of another
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`$200 billion in Chinese products that would be subject to a 10% import tariff. On July 20, 2018,
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`President Trump announced he was ready to impose tariffs on all U.S. imports from China, which
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`totaled $504 billion in 2017. On August 7, 2018, the Trump Administration subjected the remaining
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`$16 billion of the original $50 billion list of Chinese imports to the 25% tariff effective August 23,
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`2018. On September 17, 2018, the Trump Administration published a list of another $200 billion in
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`Chinese products that would be subject to a 10% import tariff, which tariffs went into effect on
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`September 24, 2018.
`6.
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`In the midst of the ongoing trade war between the United States and China, on
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`September 12, 2018, Apple introduced three new phones: the iPhone XR (priced at
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 4 of 23
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`$749/$799/$899), the iPhone XS (priced at $999/$1149), and the iPhone XS Max (priced at
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`$1099/$1249/$1449). Unlike the prior iPhone releases, the 2018 iPhones were not viewed as having
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`significant technological advances beyond the iPhone X released in late 2017 (priced at
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`$999/$1149). The iPhone XS and XS Max that were launched and began shipping in September
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`2018 featured a Super Retina OLED display, an all-screen stainless steel and glass design, faster
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`processors and enhanced cameras. The highest gigabyte version of the iPhone XS Max launched at a
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`price of $1,449 – $300 more than the 2017 highest gigabyte version of the iPhone X. Meanwhile,
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`Chinese manufacturers like Huawei, Oppo, and Xiaomi, which have since commandeered 24.6%,
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`20.5%, and 13.6% of the Chinese market, respectively, were slashing Apple’s Chinese market share
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`to 7.5% by offering arguably more innovative features for hundreds of dollars less per phone. For
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`instance, Huawei’s P20 Pro sells for approximately $800 in China and Xiaomi’s MIX 2S sells for
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`approximately $500 in China.
`7.
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`The strength of the U.S. dollar and the high price of iPhones, combined with a
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`declining Chinese economy, placed the iPhone out of reach of many Chinese consumers who might
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`otherwise have upgraded – at the same time that many less expensive Chinese smartphones were
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`flooding the market.
`8.
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`Making matters worse, in December 2017, Apple admitted that it had been
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`intentionally degrading, or “throttling,” the performance of the batteries in older iPhones via
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`software “updates.” This battery “throttling” had surreptitiously created artificial demand for new
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`premium priced iPhones from consumers who believed their poorly performing iPhones were
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`outdated and thus needed to be replaced. In order to stymie customer outrage over its conduct,
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`starting in January 2018, Apple dramatically cut the price of iPhone battery replacements from $79
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`to $29 “‘for anyone with an iPhone 6 or later whose battery need[ed] to be replaced, available
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`worldwide through December 2018’” – right as Apple would be debuting its three new iPhones.
`9.
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`Notwithstanding the impact of slowing economic growth in China, geopolitical
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`pressures caused by U.S.-China sales tariffs, and the Company’s ability to compel unnecessary
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`iPhone upgrades on customers, Apple issued a series of materially false and misleading statements in
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`November 2018 concerning demand for iPhones and Apples pricing power for its hardware
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 5 of 23
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`offerings, including its new iPhones launched in September 2018, in particular in China. For
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`example, on November 1, 2018, Apple reported its fourth quarter and FY18 financial results for the
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`period ended September 29, 2018. The Company boasted that “‘[o]ver the past two months, [it had]
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`delivered huge advancements for [its] customers through new versions of iPhone, Apple Watch, iPad
`and Mac as well as [its] four operating systems,’” and that as a result, it had “‘enter[ed] the holiday
`season with [its] strongest lineup of products and services ever.’” Accordingly, based in large part
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`on this lineup of products, on November 1, 2018 – more than one-third of the way through Apple’s
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`first quarter of 2019 (“1Q19”) – Apple set its 1Q19 revenue expectations in a range of $89 billion to
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`$93 billion and its gross profit margins at 38% to 38.5%.
`10.
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`During a conference call for analysts and investors held later that same evening, when
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`asked whether the U.S.-China trade tariffs and trade tariff threats were having any impact on demand
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`for iPhones in China, defendant Timothy D. Cook (“Cook”) assured investors that the only
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`“emerging markets that [Apple was] seeing pressure in [were] markets like Turkey, India, Brazil,
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`[and] Russia . . . where currencies ha[d] weakened.” Cook added, however,“[i]n relation to China
`specifically, I would not put China in that category. Our business in China was very strong last
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`quarter. We grew 16%, which we’re very happy with. iPhone, in particular, was very strong double-
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`digit growth there.”
`11.
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`In addition to the Company’s 1Q19 financial outlook, during the November 1, 2018
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`conference call, the Company surprised investors by announcing that Apple would no longer
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`disclose unit sales for iPhones and other hardware, asserting that such data was no longer relevant
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`for investors to evaluate the Company’s financial performance, all the while assuring investors that
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`despite the decision to withhold unit sales data, as in the past, the Company would still experience
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`strong performance:
`[S]tarting with the December quarter, we will no longer be providing unit sales data
`for iPhone, iPad and Mac. . . . As we accomplish these objectives, strong financial
`results follow.
`As demonstrated by our financial performance in recent years, the number
`of units sold in any 90-day period is not necessarily representative of the underlying
`strength of our business. Furthermore, our unit of sale is less relevant for us today
`than it was in the past . . . .
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 6 of 23
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`12.
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`Each of defendants’ statements set forth in ¶¶9-11 was materially false and
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`misleading when made because defendants knew and failed to disclose or deliberately disregarded:
`(a)
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`that the U.S.-China trade war had negatively impacted demand for iPhones
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`and Apple’s pricing power in greater China, one of Apple’s most important growth markets;
`(b)
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`that the rate at which Apple customers were replacing their batteries in older
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`iPhones rather than purchasing new iPhones was negatively impacting Apple’s iPhone sales growth;
`(c)
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`that, as a result of slowing demand, Apple had slashed production orders from
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`suppliers for the new 2018 iPhone models and cut prices to reduce inventory;
`(d)
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`that unit sales for iPhone and other hardware was relevant to investors and the
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`Company’s financial performance, and the decision to withhold such unit sales was designed to and
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`would mask declines in unit sales of the Company’s flagship product; and
`(e)
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`that, as a result of the foregoing, defendants lacked a reasonable basis in fact
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`when issuing the Company’s revenue outlook for 1Q19 and/or making the related statements
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`concerning demand for its products, as Apple’s business metrics and financial prospects were not as
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`strong as defendants had led the market to believe.
`13. While Apple’s mid-point 1Q19 revenue guidance range provided on November 1,
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`2018 was $1.9 billion below what the market expected, defendants’ materially false and misleading
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`statements issued that day served to prop up the market price of Apple common stock, which
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`continued to trade at artificially inflated prices throughout the Class Period.
`14.
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`Then on January 2, 2019, after the close of trading, Apple shocked the market when it
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`disclosed the true state of its actual 1Q19 iPhone sales, particularly in China. For the first time
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`during Cook’s tenure as Chief Executive Officer (“CEO”), Apple would miss its public revenue
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`projections and the miss was up to $9 billion. The Company would admit that in addition to
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`macroeconomics in the Chinese market, the price cuts to battery replacements a year earlier to fix the
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`Company’s prior surreptitious conduct had hurt iPhone sales. In a “Letter from Tim Cook to Apple
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`Investors” released after the close of trading, the Company explained as follows:
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 7 of 23
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`Emerging Market Challenges
`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.
`China’s economy began to slow in the second half of 2018. The
`government-reported GDP growth during the September quarter was the second
`lowest in the last 25 years. We believe the economic environment in China has been
`further impacted by rising trade tensions with the United States. As the climate of
`mounting uncertainty weighed on financial markets, the effects appeared to reach
`consumers as well, with traffic to our retail stores and our channel partners in China
`declining as the quarter progressed. And market data has shown that the
`contraction in Greater China’s smartphone market has been particularly sharp.
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`iPhone
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`*
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`*
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`*
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`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. . . .
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`While Greater China and other emerging markets accounted for the vast
`majority of the year-over-year iPhone revenue decline, in some developed markets,
`iPhone upgrades also were not as strong as we thought they would be. While
`macroeconomic challenges in some markets were a key contributor to this trend, we
`believe there are other factors broadly impacting our iPhone performance,
`including consumers adapting to a world with fewer carrier subsidies, US dollar
`strength-related price increases, and some customers taking advantage of
`significantly reduced pricing for iPhone battery replacements.
`15.
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`This news caused the market price of Apple common stock to plunge, closing down
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`more than $15 per share, or more than 9%, from its close of $157.92 per share on January 2, 2019 to
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`close at $142.19 per share on January 3, 2019, on unusually high volume of more than 90 million
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`shares traded.
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`JURISDICTION AND VENUE
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`16.
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`Jurisdiction is conferred by §27 of the Exchange Act. The claims asserted herein
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`arise under §§10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. This
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`Court has jurisdiction over the subject matter of this action under 28 U.S.C. §1331 and §27 of the
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`Exchange Act.
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 8 of 23
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`17.
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`Venue is proper in this District pursuant to §27 of the Exchange Act, as Apple is
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`headquartered in this District and many of the false and misleading statements alleged herein were
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`disseminated from this District.
`18.
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`In connection with the acts alleged in this complaint, defendants, directly or
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`indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,
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`the mails, interstate telephone communications and the facilities of the national securities markets.
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`PARTIES
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`19.
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`Plaintiff City of Roseville Employees’ Retirement System purchased Apple common
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`stock during the Class Period, as set forth in the accompanying certification incorporated by
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`reference herein, and has been damaged thereby.
`20.
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`Defendant Apple is a Cupertino, California-based tech company. Apple common
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`stock is listed and trades on the NASDAQ, an efficient market, under the ticker symbol “AAPL.”
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`As of October 26, 2018, the Company had 4.75 billion shares issued and outstanding.
`21.
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`Defendant Timothy D. Cook (“Cook”) is, and was at all relevant times, CEO of Apple
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`and a member of its Board of Directors.
`22.
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`Defendant Luca Maestri (“Maestri”) is, and was at all relevant times, Senior Vice
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`President and Chief Financial Officer (“CFO”) of Apple.
`23.
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`Defendants Cook and Maestri are sometimes referred to herein as the “Individual
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`Defendants.” Apple and the Individual Defendants are referred to herein, collectively, as
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`“defendants.”
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`DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
`CLASS PERIOD STATEMENTS
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`24.
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`The Class Period starts on November 2, 2018. On November 1, 2018, after the close
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`of trading, Apple issued a release reporting its fourth quarter 2018 (“4Q18”) and FY18 results for the
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`period that had ended September 29, 2018 – more than one month earlier. Apple’s release issued
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`that day emphasized that “‘[o]ver the past two months, [Apple had] delivered huge advancements for
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`[its] customers through new versions of iPhone, Apple Watch, iPad and Mac as well as [its] four
`operating systems, and [that it was] enter[ing] the holiday season with [its] strongest lineup of
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 9 of 23
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`products and services ever.’” Accordingly, based on that lineup, among other factors, Apple – then
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`already more than one-third of the way into 1Q19 – set public 1Q19 revenue expectations at a range
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`of $89 billion to $93 billion in the all-important holiday quarter and 1Q19 profit margins of 38% to
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`38.5%.
`25.
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`During the conference call held with investors and securities analysts that evening,
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`defendants repeated the representations in the release, with defendant Maestri emphasizing again that
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`Apple had “the strongest lineup ever as [it] enter[ed] the holiday season,” justifying “a new all-time
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`record” of “expect[ed] revenue [of] between $89 billion and $93 billion.” Maestri reassured
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`investors that a number of factors had been considered and were “reflect[ed]” in determining that
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`revenue range, including new products ramping and uncertainty around supply and demand balance.
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`Indeed, Maestri’s statement that, “while [the] ramps [were] going fairly well, [Apple had]
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`uncertainty around supply and demand balance” implied that demand might be so strong that it could
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`outpace supply.
`26. When questioned about any “macroeconomic uncertainty” in “emerging markets,”
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`defendant Cook maintained that those concerns did not include Apple’s greater China sales growth
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`and that its greater China sales growth was strong, stating in pertinent part as follows:
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`To give you a perspective in – at some detail, our business at India in Q4 was flat.
`Obviously, we would like to see that be a huge growth. Brazil was down somewhat
`compared to the previous year. And so I think – or at least the way that I see these is
`each one of the emerging markets has a bit of a different story. And I don’t see it as
`some sort of issue that is common between those for the most part. 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 double-digit growth there. Our other products category
`was also stronger, in fact, a bit stronger than even the . . . overall company number.
`27.
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`Defendant Maestri supported the guidance range and emphasized that Apple’s strong
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`product lineup for the holiday season purportedly provided a strong basis for the “record” financial
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`guidance being issued that day, stating in pertinent part as follows:
`[A]t the revenue level, we started from the fact that we are very, very excited about
`the lineup of products and services that we have getting into the holiday season.
`It’s the strongest lineup that we’ve ever had. And our guidance range, by the way,
`represents a new all-time quarterly revenue record . . . .
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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 10 of 23
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`28.
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`Asked how strong demand was for the two new iPhones that started shipping in
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`September 2018 – the two most expensive iPhones, the XS and XS Max – and specifically whether
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`Apple had seen purchasers hold off on XS or XS Max purchases pending the rollout of the cheaper
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`XR iPhone in October, defendant Cook stated that to date XS and XS Max demand was strong.
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`According to Cook:
`The XS and XS Max got off to a really great start, and we’ve only been selling for a
`few weeks. The XR, we’ve only got out there for, I guess, 5 – 5 days or so at this
`point and so that it’s – we have very, very little data there. Usually, there is some
`amount of wait until a product shows – another product shows up in look, but in –
`that – in looking at the data, on the sales data for XS and XS Max, there’s not
`obvious evidence of that in the data as I see it.
`29.
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`Defendants also reported that going forward the Company would no longer provide
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`unit sales numbers:
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`[S]tarting with the December quarter, we will no longer be providing unit sales data
`for iPhone, iPad and Mac. As we have stated many times, our objective is to make
`great products and services that enrich people’s lives and to provide an unparalleled
`customer experience so that our users are highly satisfied, loyal and engaged. As we
`accomplish these objectives, strong financial results follow.
`As demonstrated by our financial performance in recent years, the number
`of units sold in any 90-day period is not necessarily representative of the underlying
`strength of our business. Furthermore, our unit of sale is less relevant for us today
`than it was in the past given the breadth of our portfolio and the wider sales price
`dispersion within any given product line.
`30.
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`Defendants then tried to justify the Company’s decision to withhold iPhone unit sales.
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`Rejecting the notion suggested by at least one analyst that the reason for withholding iPhone unit
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`data was because “iPhone units are going to start going negative . . . [and] it’s easier to talk about
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`great things and not show the details of things that are not going so great,” defendants Maestri and
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`Cook each insisted that the revenue and profit margin guidance being provided that day was all
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`investors should focus on, maintaining that demand was still strong for Apple’s more expensive
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`iPhone offerings, stating in pertinent part as follows:
`[Maestri:] 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. But as I said
`earlier, a unit of sale is less relevant today than it was in the past. To give you an
`example, the unit sales of iPhone at the top end of the line have been very strong
`during the September quarter. And that’s very important because we are attracting
`customers to the most recent technologies and features and innovation that we
`bring into the lineup, but you don’t necessarily see that in the number that is
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`COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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`- 9 -
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`

`

`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 11 of 23
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`
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`reported. And so therefore, we will – as I said, we’ll provide the qualitative
`commentary when it is important and relevant, but at the end of the day, we make
`our decisions to – from a financial standpoint, to try and optimize our revenue and
`our gross margin dollars. And that, we think, is the focus that is in the best interest
`of our investors.
`
`[Cook:] Jim, let me just add a couple things to that for color. Our installed
`base is growing at double digit, and so there’s no – and that’s probably a much more
`significant metric for us from an ecosystem point of view and customer loyalty, et
`cetera. The second thing is this is a little bit like if you go to the market and you
`push your cart up to the cashier and she says or he says, “How many units you have
`in there?,” it sort of – it doesn’t matter a lot how many units there are in there in
`terms of the overall value of what’s in the cart.
`31.
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`Each of defendants’ statements set forth in ¶¶24-30 was materially false and
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`misleading because each of the defendants knew and failed to disclose or deliberately disregarded:
`(a)
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`that the U.S.-China trade war had negatively impacted demand for iPhones
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`and Apple’s pricing power in greater China, one of Apple’s most important growth markets;
`(b)
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`that the rate at which Apple customers were replacing their batteries in older
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`iPhones rather than purchasing new iPhones was negatively impacting Apple’s iPhone sales growth;
`(c)
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`that, as a result of slowing demand, Apple had slashed production orders from
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`suppliers for the new 2018 iPhone models and cut prices to reduce inventory;
`(d)
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`that unit sales for iPhone and other hardware was relevant to investors and the
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`Company’s financial performance, and the decision to withhold such unit sales was designed to and
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`would mask declines in unit sales of the Company’s flagship product; and
`(e)
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`that, as a result of the foregoing, defendants lacked a reasonable basis in fact
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`when issuing the Company’s revenue outlook for 1Q19 and/or making the related statements
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`concerning demand for its products, as Apple’s business metrics and financial prospects were not as
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`strong as defendants had led the market to believe.
`32.
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`Following the Company’s November 1, 2018 earning release and conference call,
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`several securities analysts issued reports indicating that the information had been favorably received
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`by the market and that the market believed Apple was experiencing strong demand, with analysts
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`accepting Apple’s reasoning for withholding unit sales and expecting the Company to meet or beat
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`the 1Q19 financial guidance provided that day:
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`COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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`
`
`- 10 -
`
`

`

`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 12 of 23
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`
`Canaccord Genuity LLC:
`We believe Apple continues to grow its leading market share of the premium-tier
`smartphone market with double-digit growth of its installed base and believe the
`iPhone installed base of new iPhone consumers will exceed 700M exiting C2018.
`This impressive installed base should drive strong iPhone replacement sales and
`earnings, as well as cash flow generation to fund strong long-term capital returns.
`We maintain our BUY rating and $250 price target.
`. . . We believe demand trends are solid for the three new iPhone models
`and anticipate strong ASPs and margin trends for the iPhone franchise going
`forward.
`
`
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`Piper Jaffray:
`Apple reported Sept. quarter revenue and EPS ahead of the Street (2% and
`5%, respectively) . . . . Revenue guidance for the Dec. quarter is 2% below
`consensus at the mid-point, with the gross margin outlook at 38.25% (Street at
`38.5%). With slightly weaker guidance for the Dec. quarter and the company’s
`indication that it will provide less product level disclosure (no units or ASP), some
`investors will assume iPhone units are trending poorly. With increasing disclosure
`coming for services (gross margin), we believe Apple is simply trying to change the
`focus towards the overall installed base and services revenue per user. Maintain
`OW, PT remains $250.
`
`
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`Wedbush:
`Last night Apple delivered FY4Q (Sept.) results which beat the Street from a
`headline number but slightly missed iPhone unit shipments which was the focus of
`investors. However the quarter itself took a back seat to the modestly softer
`December guidance that Cook & Co. gave on the heels of its much anticipated
`XS/XR iPhone product cycle which remains the linchpin of the Apple story for
`FY19. That said, the “jaw dropper” last night was when Apple announced it will stop
`providing units/ASPs for iPhones, Macs and its other product lines. The Street will
`find this a tough pill to swallow this morning as the transparency of the Cupertino
`story takes a major dent given that tracking iPhone units has become habitual to any
`investor that has closely followed the Apple story for the last decade+ and is critical
`to the thesis. As explained on the conference call we understand the logic of not
`providing these metrics anymore given that ASPs are all over the map and a slew
`of new smartphone releases has catalyzed Apple to focus more on overall segment
`revenue rather than myopic quarterly unit sales. However, the skeptics will point
`to Apple doing this right at the critical juncture where higher ASPs are making up for
`slower unit sales which remains the worry and the stock will get hit accordingly this
`morning. That said, while it’s frustrating how Apple (with no warning) decided to
`pull the plug on unit metrics, our core bull thesis does not change on the story and
`to some extent is emboldened by the ~$800 ASP story and a robust services business
`poised to hit $50 billion+ in FY20. . . . While last night’s “Houdini-like metrics
`move” was a stunner, our core bullish thesis on Apple remains unchanged despite the
`noise this morning. We maintain our OUTPERFORM rating and $310 price
`target.
`33.
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`Following the November 1, 2018 release of the Company’s 4Q18 and FY18 financial
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`results and defendants’ comments concerning the purported strong demand for Apple’s iPhones and
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`COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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`- 11 -
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`

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`Case 4:19-cv-02033-YGR Document 1 Filed 04/16/19 Page 13 of 23
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`its pricing power, and despite the fact that the $91 billion mid-point 1Q19