Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 1 of 196
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`LABATON SUCHAROW LLP
`Carol C. Villegas (admitted pro hac vice)
`Christine M. Fox (admitted pro hac vice)
`140 Broadway
`New York, New York 10005
`Telephone: (212) 907-0700
`Facsimile: (212) 818-0477
`cvillegas@labaton.com
`cfox@labaton.com
`
`Counsel for Lead Plaintiff Employees’ Retirement
`System of the State of Rhode Island
`and the Proposed Class
`
`WAGSTAFFE, VON LOEWENFELDT,
`BUSCH & RADWICK LLP
`James M. Wagstaffe (SBN 95535)
`Frank Busch (SBN 258288)
`100 Pine Street, Suite 725
`San Francisco, California 94111
`Telephone: (415) 357-8900
`Facsimile: (415) 357-8910
`wagstaffe@wvbrlaw.com
`busch@wvbrlaw.com
`
`Liaison Counsel for Lead Plaintiff Employees’
`Retirement System of the State of Rhode Island
`and the Proposed Class
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`IN RE APPLE INC. SECURITIES
`LITIGATION
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`_____________________________________ )
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`Civil Action No. 4:19-cv-02033-YGR
`
`CLASS ACTION
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`CORRECTED CONSOLIDATED AND
`AMENDED CLASS ACTION
`COMPLAINT FOR VIOLATION OF THE
`FEDERAL SECURITIES LAWS
`
`DEMAND FOR JURY TRIAL
`
`
`CORECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 2 of 196
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`I.
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`INTRODUCTION .............................................................................................................. 1
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`TABLE OF CONTENTS
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`II.
`
`NATURE OF THE ACTION ............................................................................................. 1
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`III.
`
`JURISDICTION AND VENUE ....................................................................................... 19
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`IV.
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`PARTIES .......................................................................................................................... 20
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`V.
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`SUBSTANTIVE ALLEGATIONS .................................................................................. 21
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`A.
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`Company Background .......................................................................................... 21
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`1.
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`2.
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`Apple’s Flagship Product, the iPhone ....................................................... 21
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`Importance of Chinese Market to Apple ................................................... 23
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`B.
`
`An Elongating Smartphone Upgrade Cycle Has Negatively Affected
`iPhone Upgrades ................................................................................................... 24
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`1.
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`2.
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`3.
`
`4.
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`The mobile device upgrade cycle has been steadily increasing over
`the past several years ................................................................................ 24
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`The phasing out of carrier subsidies has contributed to: (i) the
`elongation of the upgrade cycle for high-end smartphones; and (ii)
`the success of more budget-friendly smartphones .................................... 26
`
`The lack of significant feature differentiation in next generation
`smartphone models often does not justify their high cost......................... 28
`
`(a)
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`New generation iPhones do not offer significant enough
`feature differentiation to warrant upgrades ................................... 28
`
`The secondary market for smartphones also has contributed to the
`elongation of the upgrade cycle for high-end smartphones such as
`the iPhone.................................................................................................. 29
`
`(a)
`
`Tim Cook Acknowledges the Robust Secondary Market for
`iPhones .......................................................................................... 30
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`C.
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`D.
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`Apple Experiences a Slow Down in iPhone Sales Growth in 2016 ..................... 31
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`Apple Faces Increased Competition in the Smartphone Market in Greater
`China, its Most Important Growth Market ........................................................... 35
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`E.
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`Apple’s Throttling of its iPhones .......................................................................... 40
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`1.
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`2.
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`Apple iPhones Start to Experience Unexpected Shutdowns in 2016 ....... 40
`
`Apple Issues iOS Update in January 2017 Purportedly to Fix Bugs
`and Enhance Device Security, But Instead the Update Throttled the
`Performance of Older iPhones .................................................................. 42
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 3 of 196
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`3.
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`4.
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`5.
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`6.
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`7.
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`8.
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`9.
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`Consumers Accelerate Purchases of New iPhone Models in 2017
`Believing Their Existing, Older iPhones Are Obsolete, Leading to
`Record Revenues and “Double Digit” iPhone Growth in the
`Second Half of Calendar 2017 .................................................................. 44
`
`Throttling of iPhone Performance is Linked to Aging Battery Life
`Limitations By Independent Research and Social Media Posts in
`December 2017 ......................................................................................... 46
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`Apple Finally Admits that Aging Batteries and iOS Updates Were
`the Cause of iPhone Throttling ................................................................. 47
`
`Apple Offers $29 Battery Replacements In an Effort to Win Back
`Customer Goodwill ................................................................................... 49
`
`Apple’s Offer of Discounted Battery Replacements in 2018 Leads
`to Reduced Demand for iPhone Upgrades as Consumers Delay
`Purchasing Next Generation of iPhones ................................................... 49
`
`Apple’s Surreptitious Throttling Causes Consumers in China to
`Flock to Competitors................................................................................. 51
`
`Regulatory Proceedings, Consumer Litigation, and Other
`Investigations into Batterygate ................................................................. 54
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`10.
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`Despite Statements to the Contrary, Apple Continues to Throttle its
`iPhones Throughout 2018 and 2019 ......................................................... 55
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`(a)
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`(b)
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`(c)
`
`(d)
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`Apple Tells Congress in February 2018, It Won’t Throttle
`its Newest Model iPhones ............................................................. 57
`
`In Reaction to Negative Publicity, Apple Releases a
`Software Update to Allow Users to Disable Throttling in
`Older iPhones ................................................................................ 58
`
`In October 2018, Apple Releases a Software Update that
`Throttles iPhone 8, 8 Plus, and iPhone X ..................................... 59
`
`The Chinese Market’s Response to Apple’s Continued
`Throttling ...................................................................................... 63
`
`(e)
`
`Effect of Throttling on iPhone Demand........................................ 67
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`F.
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`G.
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`China’s Economy Worsens in 2018 ...................................................................... 67
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`Statements By Former Apple Employees and Others With Knowledge
`Confirm that During the Class Period, Defendants Meticulously Tracked:
`(i) iPhone Sales Data (including in China); (ii) Lengthening iPhone
`Upgrade Cycles; and (iii) how the $29 Battery Replacement Program
`Would Affect iPhone Upgrade Cycles .................................................................. 73
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`1.
`
`2.
`
`Confidential Witnesses ............................................................................. 73
`
`Apple tracked “unbricking” of new iPhones ............................................ 75
`
`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 4 of 196
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`3.
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`4.
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`5.
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`6.
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`7.
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`8.
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`Apple experienced declining iPhone demand in Greater China
`starting in 2017 ......................................................................................... 76
`
`Apple Suppliers in China Experienced Decreased Orders and
`Slashed Forecasts for the iPhone during the Class Period ........................ 80
`
`Apple tracked lengthening smartphone and iPhone upgrade cycles ......... 82
`
`Defendants failed to disclose that the January 2017 software
`update would throttle iPhone battery performance and the risk this
`posed to the Company’s future iPhone revenues ...................................... 82
`
`Apple tracked how its battery replacement program would affect
`iPhone upgrade cycles............................................................................... 83
`
`Apple’s finance department tracked point of sales data for the
`iPhones (including in China) on a daily and weekly basis; Apple
`leadership received weekly sales reports .................................................. 85
`
`VI.
`
`DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS
`AND OMISSIONS DURING THE CLASS PERIOD ..................................................... 89
`
`A.
`
`Overview of Defendants’ Fraudulent Conduct ..................................................... 89
`
`1.
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`2.
`
`Third Quarter Fiscal 2017 Results – August 1, 2017 ............................... 89
`
`Fourth Quarter Fiscal 2017 Results – November 2, 2017 ....................... 96
`
`B.
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`Materialization of the Risk and Continued Materially False and
`Misleading Statements and Omissions ................................................................. 99
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`1.
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`2.
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`3.
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`4.
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`5.
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`6.
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`7.
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`8.
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`First Quarter Fiscal 2018 Results – February 1, 2018 ............................. 99
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`Apple’s Letter to Congress ..................................................................... 108
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`Apple Supplier Lowers Guidance – April 2018 ..................................... 109
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`Second Quarter Fiscal 2018 Results – May 1, 2018 .............................. 110
`
`June 2018 ................................................................................................ 118
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`Third Quarter Fiscal 2018 Results – July 31, 2018 .............................. 119
`
`Apple Introduces the iPhone XS, XS Max, and XR - September
`and October 2018 .................................................................................... 128
`
`Apple Discounts New Release iPhones in Order to Increase Sales
`and Reduce Inventory ............................................................................. 130
`
`9.
`
`Apple Throttles the Latest Generation of iPhones .................................. 130
`
`10.
`
`Fourth Quarter Fiscal 2018 Results – November 1, 2018 .................... 133
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 5 of 196
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`11.
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`Apple Tells Its Top Smartphone Assemblers To Halt Plans For
`Additional Production Lines for new iPhone XR - November 5,
`2018......................................................................................................... 142
`
`VII. THE TRUTH IS REVEALED ........................................................................................ 145
`
`VIII. THE MARKET REACTS TO APPLE’S JANUARY 2, 2019 DISCLOSURE ............. 147
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`IX.
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`POST-CLASS PERIOD REVELATIONS ..................................................................... 156
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`X.
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`ADDITIONAL SCIENTER ALLEGATIONS ............................................................... 159
`
`A.
`
`The Individual Defendants’ Stock Sales During the Class Period Were
`Highly Unusual and Suspicious .......................................................................... 161
`
`1.
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`2.
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`3.
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`4.
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`5.
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`The Value and Amount of Trading by the Individual Defendants
`Was Highly Unusual ............................................................................... 161
`
`The Proceeds of Apple Stock Sold During the Class Period by the
`Individual Defendants Were Extremely Large ....................................... 164
`
`The Individual Defendants’ Class Period Stock Sales Were
`Inconsistent With Prior Trading Practices .............................................. 165
`
`The Timing of the Individual Defendants’ Stock Sales Was
`Suspicious ............................................................................................... 165
`
`The Presence of 10b5-1 Trading Plans Adopted by the Individual
`Defendants Does Not Absolve Them of Liability .................................. 166
`
`The Importance of Greater China to Apple’s Business and Growth
`Strategy ............................................................................................................... 167
`
`Senior Management, including the Individual Defendants, Closely
`Tracked iPhone Sales and Apple’s Business in Greater China........................... 168
`
`The Individual Defendants Knew, or at Least Recklessly Disregarded, that
`Apple’s iOS Software Updates Were Being Used by the Company to
`Throttle its iPhones and Were Aware of the Public’s Negative Reaction to
`the Throttling, Especially in Greater China ........................................................ 169
`
`Defendants Possessed the Motive and Opportunity to Artificially
`Accelerate the iPhone Upgrade Cycle Once Sales for Apple’s Flagship
`Product Peaked in 2016 and Threatened to Derail the Company’s Business ..... 170
`
`Statements By Former Apple Employees and Others With Knowledge
`Corroborate that Defendants Tracked: (i) iPhone Sales Data (including in
`Greater China); (ii) Lengthening iPhone Upgrade Cycles; and (iii) how the
`Company’s $29 battery replacement offer would elongate the iPhone
`upgrade cycle ...................................................................................................... 171
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`B.
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`C.
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`D.
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`E.
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`F.
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`G.
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`Apple’s Attempt to Obscure Declining iPhone Sales Growth by No
`Longer Reporting Unit Sales for its Products ..................................................... 174
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`XI.
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`LOSS CAUSATION/ECONOMIC LOSS ..................................................................... 176
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`
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 6 of 196
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`XII. CLASS ACTION ALLEGATIONS ............................................................................... 181
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`XIII. APPLICATION OF PRESUMPTION OF RELIANCE: FRAUD ON THE
`MARKET ........................................................................................................................ 182
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`XIV. NO SAFE HARBOR ...................................................................................................... 184
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`XV. CAUSES OF ACTION ................................................................................................... 185
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`COUNT I For Violation of § 10(b) of the Exchange Act and Rule
`10b-5 Against All Defendants .................................................... 185
`
`COUNT II For Violation of § 20(a) of the Exchange Act Against
`Defendants Cook & Maestri ....................................................... 187
`
`PRAYER FOR RELIEF ............................................................................................................. 188
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`JURY DEMAND ........................................................................................................................ 189
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`
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 7 of 196
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`I.
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`INTRODUCTION
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`Lead Plaintiff Employees’ Retirement System of the State of Rhode Island (“Rhode
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`Island” or “Lead Plaintiff”), individually and on behalf of all others similarly situated, by its
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`undersigned counsel, hereby brings this Consolidated and Amended Class Action Complaint (the
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`“Complaint”) against Apple Inc. (“Apple” or the “Company”), Timothy D. Cook, and Luca
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`Maestri (collectively, “Defendants”).1 The allegations herein are based on Lead Plaintiff’s
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`personal knowledge as to its own acts and on information and belief as to all other matters, such
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`information and belief having been informed by the investigation conducted by and under the
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`supervision of Lead Counsel, which includes a review of: U.S. Securities and Exchange
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`Commission (“SEC”) filings by Apple; securities analysts’ reports and advisories about the
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`Company; press releases and other public statements issued by the Company; media reports
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`about the Company; interviews of former employees of Apple and others with knowledge of the
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`matters alleged herein; and consultation with experts in the areas of: (1) smartphone product
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`cycles; and (2) loss causation and damages.2 Lead Counsel’s investigation into the matters
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`alleged herein is ongoing and many relevant facts are known only to, or are exclusively within
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`the custody or control of, the Defendants. Lead Plaintiff believes that substantial additional
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`evidentiary support exists for the allegations set forth herein after a reasonable opportunity for
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`discovery. On behalf of itself and the class it seeks to represent, Lead Plaintiff alleges as
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`follows:
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`II.
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`NATURE OF THE ACTION
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`1.
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`This is a federal securities class action on behalf of all persons and entities who
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`purchased or otherwise acquired the publicly traded securities of Apple during the period from
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`August 2, 2017 through January 2, 2019, inclusive (the “Class Period”), who were damaged
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`thereby (the “Class”). The action is brought against Apple and certain of its officers for
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`1 Cook and Maestri are referred to herein as the “Individual Defendants.”
`2 Confidential witnesses (“CWs”) will be identified herein by number (CW-1, CW-2, etc.).
`All CWs will be described in the masculine to protect their identities.
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`1
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`

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`violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5
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`promulgated thereunder.
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`2.
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`Apple is a multinational technology company headquartered in Cupertino,
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`California that designs, develops, and sells consumer electronics, computer software, and online
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`services. Apple is the world’s largest information technology company by revenue and the
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`world’s third-largest mobile phone developer by units sold. There are currently over one billion
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`Apple products in active use worldwide.
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`3.
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`Apple’s iPhones have served as the Company’s flagship products, utilizing
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`Apple’s iOS operating system, powering applications including Siri, an intelligent assistant, and
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`Apple Pay, Touch ID, and Face ID on qualifying devices. Sales of iPhones generated more than
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`60% of Apple’s 2018 revenue.3 Since its original launch in 2007 through 2015, the Company
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`released, on average, one new iPhone model per year, typically to great fanfare and high
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`demand. Apple also aggressively increased the pricing of its iPhones from the $99-$399 range
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`maintained through 2013, to a top offering price of $1,449 for the Apple XS Max in September
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`2018.
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`4.
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`The Company and its products enjoy significant geographic reach, including in
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`emerging markets. Greater China, a region that includes mainland China, Hong Kong, and
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`Taiwan, is Apple’s third-largest market after the United States and Europe, and the Company’s
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`most important growth market. Greater China accounted for $52 billion in sales in Apple’s fiscal
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`year 2018 (“FY18”), ended September 29, 2018 – nearly 20% of Apple’s total annual sales for
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`fiscal 2018.4
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`5.
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`While China represents the Company’s highest growth market, China is also
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`among its most competitive markets. Chinese upstart brands such as Huawei, Xiaomi and Oppo
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`offer similar looking all-screen smartphones for a wider range of prices, including many lower
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`3 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.
`4 Throughout the Complaint, references to both Greater China and China refer to the region
`Apple identifies as Greater China in its SEC filings, which, unless otherwise noted, includes
`Hong Kong, Taiwan, and mainland China.
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
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`2
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`

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`priced models. At the same time that Apple’s iPhone sales revenues were growing in China due
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`to Apple’s outsized price increases, Chinese smartphone manufacturers were launching scores of
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`much lower priced smartphones with greater technological advancements and more in-demand
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`features for the Chinese market, thus competing with Apple’s iPhone offerings and diminishing
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`Apple’s pricing power.
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`6.
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`After experiencing significant year-over-year growth each year since 2010,
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`beginning in 2016, the smartphone industry as a whole was hit by stagnating growth. In the first
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`quarter of calendar year 2016, the smartphone market starting declining due, in large part, to
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`“slowing product innovation.” Notably, Apple “had the largest fall in growth of all the major
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`vendors” due to its inability to duplicate the innovation of the iPhone 6. Thus, by 2016, an
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`increasing number of consumers were holding on to their smartphones longer and waiting longer
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`to upgrade those devices. Compounding this problem for Apple, in particular, was the fact that
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`what meager growth was forecasted for the smartphone market was expected to come primarily
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`from international and emerging markets, which favored lower priced devices from Android
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`vendors, as opposed to the premium prices commanded by Apple’s iPhones.
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`7.
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`Apple’s loss of market share to Android devices and declining demand for
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`iPhones in 2016 had a dual effect on the Company. During this time, Apple was becoming
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`increasingly reliant on sources of revenue other than, but still linked to, the sale of iPhones,
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`including AirPods, Apple Watches, and Apple Services. As the Company lost market share in
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`the smartphone market and growth slowed, not only was Apple losing revenue from sales of
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`iPhones themselves, but revenue derived from those products was at risk. The faltering growth
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`in iPhone sales threatened the long term health of the Company as Apple’s customer base for its
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`flagship product stalled and the potential universe of customers for its services and other
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`products stagnated. By mid-2016, as growth in the smartphone industry became sluggish,
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`upgrade cycles were lengthening, and Apple was losing market share to competitors, particularly
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`in China, Apple found itself in dire need of ways to increase its iPhone sales.
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
`
`3
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`

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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 10 of 196
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`8.
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` It was against this backdrop that reports surfaced, in late 2016, of older model
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`iPhones experiencing sudden unexplained shutdown issues. In an action purportedly meant to
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`remediate the problem, in January 2017, Apple released a software update for those iPhones, iOS
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`10.2.1, with the intention of secretly slowing down, or “throttling” the iPhone models 6 and later
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`to force consumers into early upgrades. Undisclosed to the market, but known to Defendants,
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`was that the shutdowns were caused by aging iPhone batteries as opposed to the age of the
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`iPhone itself (a problem its competitors’ smartphones were not experiencing), and simply
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`replacing the iPhone’s battery would solve the shutdown and throttling problems.
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`9.
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`Defendants’ undisclosed practice of slowing down iPhones with older batteries
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`came with a substantial benefit for the Company. Frustrated with iPhones operating in
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`diminished capacity and falsely believing their devices to be obsolete, consumers opted to
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`purchase brand new iPhones on accelerated timetables. These “premature” upgrades artificially
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`inflated iPhone sales in 2017 and early 2018, and provided the appearance of a reversal of
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`declining iPhone sales growth, reinvigorating market interest in the Company.
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`10.
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`In December 2017, an independent investigation revealed that Apple’s software
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`updates were, in fact, the cause of the slowdown in older iPhones models. More importantly, the
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`investigation revealed that the slowdowns were not device-related, but battery-related.
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`Therefore, simply replacing the iPhone’s battery, then only $79, could rectify the issue.
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`11.
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`On December 20, 2017, Apple admitted that it had deliberately throttled
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`performance on some iPhones purportedly to save on battery life and avoid unexpected
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`shutdowns. Apple explained that new batteries would solve this problem. Less than two weeks
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`later, in an effort to retain customer goodwill, Apple announced that throughout calendar year
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`2018, it would offer a discount for its replacement iPhone batteries, charging $29, down from
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`$79. Despite the discounted battery offer, the damage to the Company’s reputation and
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`goodwill, especially in the protectionist Chinese market, was done.
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`12.
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`The first negative financial effects of the market learning the truth about the
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`Company’s throttling came in February 2018 when Apple announced lowered guidance for Q2
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
`
`4
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`

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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 11 of 196
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`FY18. The lowered guidance signaled declining iPhone demand for two reasons. First, instead
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`of upgrading for nearly $1,000 a phone (as consumers had been doing for the past two quarters),
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`consumers were instead taking advantage of Apple’s $29 battery replacement. Second,
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`consumers also were upset with Apple’s tactics and turned away from the iPhone to competitors
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`when it came time to upgrade or purchase a new phone. This led to a marked decline in market
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`share throughout the Class Period, particularly in China, one of Apple’s most important markets.
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`13.
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`In order to conceal Apple’s declining share of the smartphone market, throughout
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`the Class Period, Defendants misled investors by making materially false and misleading
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`statements related to the Company’s revenues and demand for iPhones that artificially inflated
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`and/or artificially maintained Apple’s stock price. However, Defendants’ statements during the
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`Class Period were materially false and misleading because Defendants knew and failed to
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`disclose or deliberately disregarded that:
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`(a)
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`higher iPhone demand in 2017 and early 2018, including in Greater China,
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`was driven by artificially accelerated upgrade rates as a result of Apple intentionally throttling
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`older-model iPhones during 2017 (i.e., a segment of customers upgraded their iPhones early
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`believing their phones to be obsolete ̶ artificially inflating iPhone revenues in 2017, at the
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`expense of iPhone revenues in 2018);
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`(b)
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`contrary to Defendants’ representations to investors, Apple was tracking
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`the number of consumers taking advantage of iPhone battery replacements and the expected
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`effect of those battery replacements on iPhone upgrade rates for 2018;
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`(c)
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`the rate at which Apple customers were replacing their batteries in older
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`iPhones, under Apple’s $29 battery replacement program was negatively impacting demand for
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`the newer model iPhones (inlcudign the XS, XS Max, and XR, released in September and
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`October 2018);
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`(d)
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`a confluence of factors including: (i) macroeconomic and geopolitical
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`issues in China, as well as trade tensions and a worsening economy in 2018, (ii) Apple’s
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`continued throttling of recent models of iPhones which negatively affected the perception of the
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`28
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
`
`5
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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 12 of 196
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`Company in Greater China, and (iii) severe competition in the Chinese smartphone market,
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`together were negatively impacting demand for iPhones and decimating Apple’s pricing power
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`in the smartphone market in Greater China, one of Apple’s most important growth markets;
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`(e)
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`iPhone demand in Greater China was expected to continue to deteriorate
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`long term due to competitive forces (despite demand in Greater China being temporarily
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`artificially inflated, through Q1 2019, by the effects of Apple’s throttling of older model
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`iPhones);
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`(f)
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`the fact that WeChat’s core features competed directly with many of the
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`core features of Apple’s iOS operating system, such as Apple Pay and iMessage, negatively (not
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`positively) impacted the appeal of the iPhone to consumers in Greater China, and Defendant
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`Cook’s representations during the Class Period that WeChat would encourage users in China
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`switch to Apple was flawed;
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`(g)
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`the effect that Apple’s practice of continuing to throttle iPhones
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`throughout the Class Period would have on the Company’s business;
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`(h)
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`as a result of slowing demand, Apple had decided to slash production
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`orders from suppliers for the new 2018 iPhone models;
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`(i)
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`as a result of slowing demand and in an effort to reduce excess inventory,
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`Apple had cut prices of its latest generation iPhones starting in October 2018 (described by
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`Company insiders as a “fire-drill”);
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`(j)
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`the decision to withhold iPhone unit sales, announced on November 1,
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`2018, was intentionally designed to conceal declining iPhone sales; and
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`(k)
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`as a result of the foregoing, Defendants lacked a reasonable basis in fact
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`when making the related statements concerning demand and growth for its iPhones, as Apple’s
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`business metrics and financial prospects were not as strong as Defendants had led the market to
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`believe.
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`14.
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`The statements of former employees of Apple and others with knowledge of
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`certain facts alleged herein, confirm that during the Class Period, Defendants meticulously
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`28
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`CORRECTED CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT
`FOR VIOLATION OF THE FEDERAL SECURITIES LAWS [CASE NO. 19-CV-02033-YGR]
`
`6
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`

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`Case 4:19-cv-02033-YGR Document 98 Filed 01/15/20 Page 13 of 196
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`tracked point of sales data for the iPhone (including in Greater China) and knew that sales
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`growth was stalling, especially in Greater China, where lower-priced competitors’