Another Lame Brain Miscue By Apple May Cost Money And Lives

Summary

• Apple's had several miscues related to its iPhones, which have cost the company hundreds of millions of dollars in my estimates.
• Now, Apple has introduced its iPhone 12 with MagSafe that has batteries strong enough to deactivate implanted pacemakers/defibrillators and can cost lives.
• Apple has not alerted me to the problem, an iPhone 12 owner with a pacemaker/defibrillator, in more than a month since data was published in a medical journal.

Apple (AAPL) shipped 201 million smartphones in 2020, an increase of just 3% over 2019. Because of the popularity of the current iPhone 12 model, Apple sold 82 million iPhones in Q4, when the 12 was introduced.

I estimate Apple will sell even more than 200 million iPhone 12 models, based on Q4 2020 and Q1-3 2021, before the iPhone 13 is introduced in Q4 2021.

But now, based on new medical information, Apple stands to lose significant future sales of iPhone models, because its Phone 12 can actually kill people. According to a recent report by cardiologists at Henry Ford Heart & Vascular Institute, the strong magnet in the iPhone 12 that helps align the phone on Apple’s MagSafe accessory to maximize charging interferes with implanted pacemakers.

According to the study,

“These cardiac devices have switches which respond to an external magnet to change how the device functions. For a defibrillator, a magnet can be used to turn the device off. For a pacemaker, a strong magnet can make the device deliver electrical impulses that cause the heart to beat out of sync, which can bring about a potentially lethal condition called ventricular fibrillation.”

When the iPhone 12 was close to the patient's chest, the defibrillator function of the pacemaker, which prevents cardiac arrest, was deactivated until the phone was moved away.

If a pacemaker/defibrillator is deactivated and a person goes into cardiac arrest, it could be deadly. How do I know? Read on.

In a report of their findings in the HeartRhythm medical journal, which was published on January 4, 2021.

"We believe our findings have profound implications on a large scale for the people who live daily with these devices, who without thinking, will place their phone in their shirt pocket or upper pocket or their coat – not knowing that it can cause their defibrillator or pacemaker to function in a way that could potentially be lethal."

What this could mean for Apple

There are 1,000,000 pacemakers implanted in patients worldwide each year, of which there are 300,000 in the U.S. I’m writing this article for two reasons:

1. I had one of these pacemaker/defibrillators installed about five years ago. Turns out I have a gene that caused me to go into cardiac arrest (ventricular tachycardia) after drinking scotch and smoking a cigar. I awoke In an ambulance and didn’t know I had the hereditary gene until gene testing was done weeks later. I have my pacemaker/defibrillator tested every year at my cardiologist and daily through a remote monitor.
2. I bought an iPhone 12 for my son, and occasionally use his if my iPhone 6S is charging. I nearly bought an iPhone 12 for myself, replacing an overdue iPhone 6S, the same day, but a little voice said no.

The above medical article was published on January 4, 2021 in the medical journal. In a month since this publication, I received no warning correspondence from Apple, except for a free 1 year subscription to Apple TV because of my purchase!

Watch for Class Action Lawsuits

This opens up Apple to potential lawsuits for failure to warn purchasers that if they had an Apple 12, they should be aware of these potentially significant medical issues associated with the phone.

I’m aware of one class action lawsuit against Apple. A November 18, 2020 article in the Washington Post reported that Apple will pay $113 million to settle an investigation by nearly three dozen states into the tech giant’s past practice of slowing customers’ old iPhones in an attempt to preserve their batteries.

The WaPo article also noted:

“This March, Apple settled a multiyear class-action lawsuit by agreeing to pay $500 million, much of which it has set aside for select iPhone users to receive $25 in refunds. (The company, however, did not have to admit fault even as it ended the litigation.) A month earlier, French regulators fined Apple roughly $25 million, arguing the company should have been more forthcoming about its practices.”

Those penalties cost the company $638 million that I'm aware.

I discussed Apple’s “lame brain miscue” in a January 16, 2018 Seeking Alpha article entitled “Apple's iPhone Battery Replacement Could Consume Enough Cobalt To Make 26% Of EVs Sold In 2017.”

In my summary bullets for this article I noted:

• Apple's battery replacement program affects 650 million iPhones made since the iPhone 6 in September 2014.
• The battery replacement has been shown to also improve performance of the iPhones.
• Apple's income will be impacted by the cost of the replacement batteries and by delays in purchases of newer phones, thereby impacting income of its supply chain.
• Based on an average of 10 grams of cobalt, a key element in iPhone lithium ion batteries, the 650 million iPhones corresponds to 26% of all EVs sold in 2017.

Watch for Impacted iPhone Sales

First the battery problem

Following the news of the battery problem, Apple CEO Cook wrote his “famous” January 2, 2019 “Letter from Tim Cook to Apple investors:”

“While macroeconomic challenges in some markets were a key contributor to this trend, we believe there are other factors broadly impacting our iPhone performance, including consumers adapting to a world with fewer carrier subsidies, US dollar strength-related price increases, and some customers taking advantage of significantly reduced pricing for iPhone battery replacements.”

In the statement containing 1,360 words, I highlighted the last 12 words in the quotation above where Cook actually admitted to the problem.

In another SA article a year later, my February 13, 2019 Seeking Alpha article entitled “After Its Battery Replacement Debacle, Apple Changes Strategies For Its Current iOS Problems,”

“the replaced battery will result in lost sales of new iPhones. If we multiply 11 million phones by $1,000 per phone, then Apple would have lost $11 billion in 2018. Apple also charged $29 per battery replacement instead of the regular price of $79, so Apple lost an additional $50 per iPhone. If we deduct the normal replacement rate of 1–2 million, as Cook stated, then multiplying 9.5 million phones (11 million–1.5 million) by $50, then Apple lost an additional $47.5 million.”

That’s a total of $11,047,500 in possible lost revenue to Apple.

I can validate my above statements because, after having Apple replace my battery on my iPhone 6S, I still use it as I said above, so I extended the useful life for at least two years.

My original intention for writing the latter February 13, 2019 article was to report on Apple’s second “lame brain miscue” where I noted:

“Apple’s Newest iOS Problem - Now Apple is facing another issue. When iOS 12.1.2, introduced in mid-December, is downloaded to an iPhone 7, some phones turn into a brick - including my son's.”

But instead of replacing systems, Apple repaired it and offered $300 discount on its poorly received LCD display iPhone 11XR.

In other words, Apple changed its strategy by using a “Genius” (smart person at the Apple store), to promote an upgrade, the much cheaper XR instead of the XS instead of fixing the brick iPhone 7.

When I said no, the Genius had me sign a liability form, that since the iPhone 7 was caused by Apple, the company would defer the repair price, which was $349. He then gave my son an iPhone 6 loner and said it would take about two weeks to repair.

I don’t know the cost to Apple on this because I don’t know how many phones that were turned into a brick and fixed at a deferred price of $349 each.

Now with the magnet problem

It’s hard to estimate how many iPhone 12 models won’t be sold as a result of these medical problems, because Apple is not notifying owners of these models of the problem. As I said above, in more than a month since the news was published in the medical journal a well as traditional media outlets, the only e-mail I got from Apple was for a free 1 year subscription to Apple TV.

Perhaps Apple is betting on the fact that 1.7 million pacemaker implants per year is insignificant compared to the 200+ million iPhone 12 sales.

With a pacemaker battery life of 10 years, let’s assume using a back of the napkin calculation that the number of pacemakers in use could be 17 million. But according to a 2017 study, the mean age of patients was 66 years old, and the mean survival time after implant was 51 months. We can unfortunately assume that patients die before the batteries die, and we can reduce the 17 million to 8 million.

According to a 2014 study, people above the age of 55 represented 21% of iPhone users.

Thus, we can reduce the number of individuals with a pacemaker owning an iPhone to 1.6 million.

Finally, the average age of an iPhone at trade-in is now 2.92 years. That reduces the number to 500,000 people with pacemakers potentially buying an iPhone 12.

And so even if Apple isn't concerned about only 1.7 people not buying an iPhone 12, they certainly aren't concerned that the number reduces to only 500,000.

Watch for a Recall and Redesign

Based on Apple’s policy following its iOS 12.1.12 debacle, Apple could recall the iPhone and have the magnet removed for those who so choose as it did with the batteries. As I said in my previous paragraph, that will impact as many as 500,000 iPhone 12s. Apple’s fee to repair an iPhone 12 that is out of warranty, according to their website, is:

iPhone 12 Pro Max	$ 599
iPhone 12 Pro	$ 549
iPhone 12	$ 449
iPhone 12 mini	$ 399

Assuming all 500,000 iPhones will have their magnet replaced, at $500 each, the cost to Apple would be $250 million. Again, this is an estimate based on the assumptions I describe above. But still a small number compared to Apple's revenues.

Investor Takeaway

While Apple engineers and managers have allowed three lame-brain miscues in three years, they are not totally stupid, and I'm sure meetings have taken place although no action has been taken.

I suspect Apple will start responding to the issue when someone dies and it affects bottom line.

I suspect more class action lawsuits will pop up (I have a call in to one of the attorneys on the prior battery issue).

I suspect Apple is considering what would be a redesign cost if the MagSafe was replaced with the older charging technology, and how it would affect bottom line.

I suspect that any Apple redesign will simplify the process of removing the magnet. Right now it is under a lot of wires and components. In fact, in a teardown of the iPhone 12 Pro we see that rather than one large magnet, it uses 18 small ones. These are arranged in a circle around the wireless charging coil as shown in Chart 1.

Chart 1

Meanwhile, Apple is passing the buck, asserting on its support web site:

“Medical devices such as implanted pacemakers and defibrillators might contain sensors that respond to magnets and radios when in close contact. To avoid any potential interactions with these devices, keep your iPhone and MagSafe accessories a safe distance away from your device (more than 6 inches / 15 cm apart or more than 12 inches / 30 cm apart if wirelessly charging). But consult with your physician and your device manufacturer for specific guidelines.

Consult your physician and medical device manufacturer for information specific to your medical device and whether you need to maintain a safe distance of separation between your medical device and iPhone or any MagSafe accessories. Manufacturers often provide recommendations on the safe use of their devices around wireless or magnetic products to prevent possible interference. If you suspect iPhone or any MagSafe accessories are interfering with your medical device, stop using your iPhone or MagSafe accessories.”

This statement was picked up by some magazines such as the January 29 issue of Computerworld. But that article provides a link to Apple's support web site mentioned above with the link to the article. Interestingly, the Computerworld author makes the comment:

"While it's helpful Apple has warned customers about the problem, more helpful would be a solution from the company that deals with the issue."

I agree, which is discussed above, but what would be more "helpful" would be for Apple to take an "active" rather than "passive" approach and warn potential buyers on an individual basis about the issue. As I said, I bought the iPhone 12 in November, the article in the medical journal came out in January, and it is now mid-February and the only email I got from Apple was for a free 1-year subscription to Apple TV for purchasing the iPhone 12.

In addition, I searched the Apple website and could not find any information about this problem, just a lot of rhetoric about how great the iPhone is, with all its features.

So this raises questions for Apple and investors:

On the investor side, the lost revenue or miscues are almost insignificant to the stock price or bottom line. But Apple needs to consider the impact of its next actions, because I’m sure that Apple doesn’t want to have the reputation of “Profit at any cost, and what’s a few deaths here and there.”