Feds to Probe Apple’s iPhone Performance Disclosures

Both the Department of Justice and the Securities and Exchange Commission have launched investigations into Apple. The company has said that it will respond to the federal inquiries, which Bloomberg first reported on Tuesday.

Apple faces allegations that it may have misled investors when it decided to throttle performance on older iPhone models while introducing two pricey new ones, including the thousand-dollar iPhone X.

The inquiries, still in their early stages, center on whether Apple may have violated federal securities laws.

The DoJ declined to comment, through spokesperson Nicole Navas Oxman, as did the SEC, through spokesperson Judith Burns. Apple did not respond to our request to comment for this story.

Senate Committee Query

Apple has been under intense scrutiny following accusations that it throttled performance speeds on its older iPhone models.

Sen. John Thune, R-S.D., chairman of the Senate Committee on Commerce, Science and Transportation, last month sent a letter to Apple CEO Tim Cook with specific questions as to whether the company was pursuing “planned obsolescence” by intentionally slowing down older iPhone models to encourage demand for the newer phones.

Apple waited until a few days after Christmas to acknowledge the declining performance in older models in an online notice to customers, but the company denied any ill intent.

Apple apologized and released iOS 10.2.1, a software update designed to improve power management in iPhone 6, iPhone 6 Plus, iPhone 6s, IPhone 6s Plus and iPhone SE in order to prevent unexpected shutdowns. The company said that customers might experience longer-than-expected load times for apps, along with other performance issues.

The company also acknowledged that iPhone 6 and iPhone 6s batteries might have become less effective due to chemical slowing. However, the company further angered customers with its tepid solution to the problem, which was to begin offering replacement batteries for US$29 — a $50 discount — a few weeks earlier than originally planned.

The Senate Commerce committee expects to hear from Apple this week, said Frederick Hill, a spokesperson for Thune’s office.

The committee granted the company an extension on the original Jan. 23 deadline that Thune set for a response, he told the E-Commerce Times.

Besides the federal investigations, Apple faces numerous lawsuits alleging it defrauded consumers by throttling back performance of its older iPhone models. It reportedly faces a probe in France over the same issues.

iPhone X Demand Tepid

The new iPhone models, including the iPhone 8, iPhone 8 Plus and iPhone X, captured about 61 percent of the total U.S. mobile phone market during the fourth quarter, which is less than the last major iPhone release, according to data Consumer Intelligence Research Partners released last week.

The iPhone 7 and iPhone 7 Plus captured 72 percent of the total U.S. market in the year-ago quarter.

Comparisons for the year-over-year periods were a bit tricky, CIRP noted, because the iPhone X was launched five weeks after the iPhone 8 and iPhone 8 Plus, and therefore was not available for the entire quarter. “Concerning iPhone X relative to earlier models, we think that after the announcement of new models in September 2017, consumers saw the announcement of the iPhone 8/8 Plus and iPhone X coming, and waited to see what a $1,000+ smartphone really looked like before buying the $700-$800 phones.”

Because Apple had about eight different phone models in the market at the same time, the individual choices may have diluted sales of the new, more expensive options, CIRP also noted.

In addition, the iPhone X, which featured a what the company said was a revolutionary form of facial recognition technology, fell short of expectations, with anecdotal reports of family members being able to fool the app and unlock phones that didn’t belong to them.

Trust Tarnished?

The addition of this performance controversy to other issues customers have with the new phones — including some features in the new iOS 11 that customers do not like — may cause Apple long-term problems, said independent analyst Jeff Kagan.

“I think this will be very damaging to Apple,” he told the E-Commerce Times. “Apple has always had a halo over its head, but now that halo is tarnished.”

While Apple may experience a short-term setback, iOS and Android customers are pretty well set in their ways, noted Tuong Nguyen, principal research analyst at Gartner, and the company’s current problems aren’t likely to have much of a long-term impact.

“Most people have chosen their camp,” he told the E-Commerce Times. “I drive a stick shift, my wife drives an automatic.”

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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