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Apple to Pay $500 Million Settlement Over Battery Scandal

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Apple (AAPL - Free Report) has reportedly agreed to pay     up to $500 million to settle claims over intentionally inhibiting the performance of older iPhone models in 2017 to preserve batteries.

Per MarketWatch, iPhone owners could get up to $25 from Apple after the company agreed to a deal with lawyers representing customers.

The company will pay $310-$500 million, which includes $3,500 for each iPhone user named in the lawsuit and $93 million for the lawyers, as part of the settlement. The rest of the settlement will be distributed among owners of iPhone 6, 6S, 7 and SE models who meet the eligibility requirements.

However, the settlement still needs to be approved by a federal judge in San Jose, CA.
 

Apple Inc. Price and Consensus

 

 

Lawsuits Piling Up

Although the settlement amount is insignificant considering Apple’s huge reserve of cash and marketable securities ($207.06 billion as of Dec 28, 2019), the lawsuit in itself could be a blow to the company’s reputation.

Apple has faced several lawsuits in the past two years, with the most recent one being in December 2019, when a New York University cardiologist sued the company over Apple Watch’s use of his patented heartbeat monitoring invention.

If the lawsuit turns out to be legitimate, it will lead to the removal of the heartbeat monitoring feature from the Apple Watch. This could hurt the product’s competitive position in the long run.

Moreover, a class action lawsuit was filed against Apple in April 2019, over an alleged design defect in second and third generation smartwatches. This could further damage the product’s prospects in the wearables market.

The company also faced a lawsuit in June 2019, when two app developers sued Apple for alleged anticompetitive conduct and monopolization of the app store.

Further, the U.S. supreme court recently rebuffed an appeal by Apple in a decade-long dispute where VirnetX, a Nevada company with less than $2 million in annual revenue, is fighting to collect royalties from Apple for secure communications technology used in the iPhone, iPad and Mac computers.

These lawsuits have revealed a chink in the tech-giant’s armor, with the company’s ability to monitor and handle legal threats under scrutiny. Additionally, it exposes the company to more lawsuits in the future.

Moreover, the implication that Apple is involved in unethical business practices could dampen investors’ optimism in the company.

Zacks Rank & Other Stocks to Consider

Currently, Apple carries a Zacks Rank #2 (Buy).

Few top-ranked stocks in the broader technology sector are Applied Materials, Inc. (AMAT - Free Report) , Garmin Ltd. (GRMN - Free Report) and Microsoft Corporation (MSFT - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Applied Materials, Garmin and Microsoft is currently pegged at 9.9%, 7.4% and 13.2%, respectively.

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