Apple Faces Two Federal Probes Over iPhone Battery Issue -- 2nd Update
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 firstname.lastname@example.org
(END) Dow Jones Newswires
January 31, 2018 01:32 ET (06:32 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.