Apple Faces Two Federal Probes Over iPhone Battery Issue -- 2nd Update
January 31 2018 - 1:47AM
Dow Jones News
By Aruna Viswanatha, Tripp Mickle and Dave Michaels
Apple Inc. is being investigated by the Justice Department and
the Securities and Exchange Commission over potential securities
violations related to the company's disclosure of a software update
that slowed older iPhones, people familiar with the matter
said.
The two probes add pressure on the tech giant to address
criticism from customers and lawmakers after it acknowledged in
December that it was throttling the performance of older iPhones as
batteries aged. The company later apologized for the issue and
slashed the price of an iPhone battery replacement to $29 from $79,
hoping to win back customer goodwill.
Apple acknowledged in a statement that it is responding to
questions from some government agencies, though it declined to
disclose which agencies or any details regarding the questions. It
also reiterated what it said in December, noting that it has
"never--and would never--do anything to intentionally shorten the
life of any Apple product, or degrade the user experience to drive
customer upgrades."
The news of the investigations was reported earlier by
Bloomberg.
Regulators and prosecutors often open investigations that don't
result in any charges being filed, and securities investigations
often take more than a year. It isn't clear why federal officials
are focusing on potential securities violations involving an issue
affecting customers.
Generally in such a case, the SEC could try to fault a public
company for failing to make timely disclosures about material
information that would affect the stock price. The company's
potential liability would probably turn on whether the fallout from
poor battery performance was likely to be material and whether the
company delayed disclosing it or had the proper systems to detect
and account for it.
Apple's stock has fallen about 4% since Apple's acknowledgment,
but much of the losses have occurred in the past week ahead of
Thursday's planned quarterly earnings report. Some of the declines
have come amid reports of possible weaker-than-expected demand for
the iPhone X. On Tuesday, Apple's shares fell 0.6% to $166.97.
Still, some analysts have said the battery issues could hit
Apple's financials. Barclays said in a note this month that Apple
could sell 16 million fewer iPhones this year, and lose $10.29
billion in revenue, directly related to customers choosing to
replace batteries rather than replace their iPhones.
Apple last week announced it will release a spring software
update with a feature that shows an iPhone battery's health and
recommends when it needs to be serviced. Customers also will be
able to see if the power-throttling feature is being used on their
device and switch it off.
During an interview with ABC News earlier this month, Chief
Executive Tim Cook said last year's update was designed to prevent
users from having their phone power off during a call or while
taking a photograph. He said Apple made the change to improve
customers' experience and that Apple disclosed the feature at the
time, though, he said people may not have been paying
attention.
"Maybe we should have been clearer, as well," Mr. Cook said. "We
deeply apologize to anybody that thinks we had some other kind of
motivation because our motivation is always the user."
Since acknowledging it throttled iPhone performance, the company
has faced questions from consumer and watchdog groups in France,
Italy and China. In France, the Paris prosecutor's office said
early this month it opened an investigation into Apple for
potential deception and "programmed obsolescence." The
investigation could lead to preliminary charges or be dropped.
Earlier this month, U.S. Sen. John Thune (R., S.D.), chairman of
the Senate Commerce Committee, sent Mr. Cook a letter seeking more
information on how the company tracked customer complaints of
processing performance and whether or not it considered offering
rebates to customers who had replaced their batteries at a higher
price.
Apple hasn't commented on the French investigation or Mr.
Thune's letter.
Battery life and processing speeds are two of the most important
features on smartphones. To prevent iPhone 6, 6s and SE devices
from powering off automatically--something that drew complaints
last year from Chinese consumer-protection groups--Apple said it
updated its operating system, iOS, to slow certain tasks that
required more computing power than a device could provide. It
expanded the practice to the iPhone 7 in the fall.
The Apple investigations add to a mounting list of clashes
between the Trump administration and tech firms over the past year,
including a rollback of internet regulations that Silicon Valley
had championed during the Obama era. Tech firms also have run into
political trouble lately in Congress, particularly over alleged
Russian online meddling in the 2016 election, but also user privacy
concerns and liability for online sex trafficking.
John McKinnon contributed to this article.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com, Tripp
Mickle at Tripp.Mickle@wsj.com and Dave Michaels at
dave.michaels@wsj.com
(END) Dow Jones Newswires
January 31, 2018 01:32 ET (06:32 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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