The Storage Lawsuit Against Apple Is Beyond Frivolous - Seeking Alpha

Summary

• The Apple lawsuit regarding storage capacity will not likely affect Apple in the long term.


• Should there be a guilty verdict, Microsoft and Samsung are far more likely to be negatively affected.


• The Apple lawsuit is much ado about nothing.

On Wednesday, Apple's (NASDAQ:AAPL) stock fell 1.9%, after it was revealed that a class action lawsuit was filed against Apple, alleging the company misled consumers about the amount of usable storage capacity its devices have, and failed to sufficiently disclose that the free iOS8 would affect the amount of usable storage on its devices.

The suit alleges that "reasonable consumers" would not expect such a discrepancy after updating their device to the latest operating system. (AppleInsider )

I'm writing this article because, in my view, there has not been enough discussion about the accuracy of the allegations in the lawsuit, or how similar and perhaps worse allegations could be made against Apple's competitors. It is a bit ironic this lawsuit is being filed against Apple, since the amount of usable storage on a 16GB iPhone, approximately 13GB, is significantly higher than most, if not all of Apple's competitors' 16GB smartphones. Samsung's (OTC:SSNLF) 16GB Galaxy S5, by comparison, only has 10.7 GB of usable storage. The following chart gives you an idea of how the amount of usable storage on an iPhone compares to Apple's competitors.

Furthermore, according to data from Microsoft's (NASDAQ:MSFT) website, the Surface Tablet, a device Microsoft is heavily advertising, uses an operating system that takes up almost 30 GB, nearly 40% of the "usable storage" on the 64GB model of the device, significantly below the 57GB of usable storage on the 64GB iPad.

Furthermore, according to numerous industry experts at AnandTech, who conducted a thorough investigation into the performance specs of Android devices, a significant number of "flagship" Android phones were proven to have been designed in a way that intentionally produces false CPU performance data to anyone attempting to measure performance. Lifehacker nicely summed up the AnandTech findings:

It seems the only companies who don't cheat are Google/Motorola and NVIDIA. (Apparently Apple doesn't either, but they obviously do not make Android devices.) Everyone else? They inflate half or more of their test scores. That includes Samsung, HTC, LG, and Asus. They all run CPU optimizations to essentially game the benchmarks and make performance look better than it really is.

As best as I can tell, Apple has the best practice in the industry when it comes to accurately advertising the storage and performance specs of its smartphones and tablets, and as best as I can tell, Apple has not been shown by any "experts" to "game" the system in a way that intentionally produces false results.

"Whiplash Willie" was the fictional crooked lawyer in the 1966 movie "The Fortune Cookie." In that movie, a lawyer convinces his brother-in-law to feign a serious injury. While I won't claim in this article that the lawyer suing Apple in this new case is a crook, the lawyer is certainly working at or near the "much ado about nothing" line.

Conclusion

Investors should not pay much attention to any lawsuits alleging Apple acted in "bad faith" when advertising the storage capacity of its devices. Although it's possible Apple will be found to have not adequately disclosed the storage capacity of its devices, I am convinced this will not be a strong negative for Apple, since Apple, at worst, would be guilty of not providing full disclosure in big bold letters on its packaging about how updates to the operating system affect storage capacity. Apple's website clearly states the usable storage capacity of Apple devices after being formatted will be less than the stated capacity.

(click to enlarge)

Source: Apple

Even if Apple is found guilty, the most significant outcome of this lawsuit could be the effect it has on Microsoft and Samsung, who are far worse offenders when it comes to acting in good faith when reporting the storage and performance specifications of their smartphones and tablets. I suspect far too many investors are nervous about the potential implications this lawsuit will have on Apple because of the significant number of devices this lawsuit applies to. Investors should not be too concerned about the implications of this lawsuit, and should focus on the facts that matter, particularly the earnings report Apple will release in a few weeks.

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

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