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Apple iPhone warranty repair fraud in China cost Apple billions of dollars

Apple iPhone warranty repair fraud in China cost Apple billions of dollars
According to a report in The Information that was published today, Apple lost billions of dollars thanks to a warranty fraud that is still taking place in China. It begins with the purchase or theft of numerous iPhone units, which then have important parts ripped out of them. Components like the CPU, circuit boards and screens are replaced with phony parts and even chewing gum wrappers. These phones are then returned to the Apple Store, and replaced under warranty. The replacements are then sold.

In 2013, Apple discovered that it could estimate how many returns were fraudulent by counting the number of replacement units that had new Apple IDs entered. Users with a legitimate return tend to use their old Apple ID once they receive their replacement unit. With this formula in mind, Apple discovered that at its peak, 60% of warranty replacements in China and Hong Kong were frauds, costing Apple the aforementioned billions of dollars. Consider that at one point, the Apple Store in Shenzhen, China was reporting more than 2,000 warranty claims a week, tops among all Apple Stores world-wide. That same year, Apple budgeted $1.6 billion for warranty costs and wound up spending $3.7 billion. Most of the gap was due to the Chinese warranty fraud.

While Apple was able to combat the fraud and reduce the rate at which it occurs in China, the scheme is now being used in other parts of the world. Apple originally put a halt to walk-in repairs and set up an on-line reservation system that required proof of ownership. But hackers online were able to snatch up time spots. So Apple then forced iPhone units being brought in for repair to undergo a diagnostic test, which would reveal any fake parts. But the fraudsters got around this by preventing their handsets from turning on. They also got their hands on records revealing information about legitimate iPhone models and used this data, including serial numbers, on their stolen units.

In China, Apple now has all iPhone models under warranty and submitted for a replacement, sent to a special repair center where they can be extensively tested. It also added invisible dye on batteries, and uses special waterproof sealants on its CPUs. The bottom line is that the warranty repair fraud game in China has dropped dramatically, from 60% of repairs in the country down to 20%. Unfortunately, Apple was finally able to get this problem under control only after billions of dollars slipped through its fingers.

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20 Comments

Atechguy0

Posts: 918; Member since: Aug 03, 2018

And still Apples sales fell in China by a vast percentage, and Apple continues to lose market share in China. Plus in India Apple only has 1% of the sales. So with the two largest markets for Smartphone sales. Apples major strong hold is the US.

lazarus_26

Posts: 38; Member since: Sep 29, 2014

Apple is doomed! :)))

rouyal

Posts: 1467; Member since: Jan 05, 2018

China doesn’t care about iPhones because they can’t clone/pirate them, and India only cares about having the latest Snapdragon as cheap as possible (Poco and OP), not exactly a market for quality items.

mahima

Posts: 685; Member since: Nov 20, 2014

So, poco and oneplus are not quality items?...lol Just because it doesn't have fruit logo?

bokimaricu

Posts: 86; Member since: Dec 21, 2013

Trust me, they really really care about the iPhones. They will do everything to have an iPhone. Source - living in China.

whatev

Posts: 1999; Member since: Oct 28, 2015

Sgodsell, how about Samsung in China? They are nowhere in the charts, while apple is relevant there, who cares about India where the asp is like 50$ lmao Take a look at thishttp://gs.statcounter.com/vendor-market-share/mobile/china The apply that fabulous and famous cream on your red burnt bum < 3

NarutoKage14

Posts: 1256; Member since: Aug 31, 2016

May be why they raised iPhone prices across the board.

Supah

Posts: 655; Member since: Mar 08, 2017

Tim Cook: "Don't worry about losing billions of dollars guys, we'll just charge em more n give em less"

D34ever

Posts: 185; Member since: Jul 14, 2018

This problem is easy to solve. Don't do business with China! It's a fact that they are a bunch of thieves.

Nikolai90

Posts: 50; Member since: May 16, 2017

Apple should move their business entirely to India or Indonesia and abandon China. Let Shenzhen entirely populated with this thieves.

rouyal

Posts: 1467; Member since: Jan 05, 2018

Everybody wants a slice if that sweet Apple pie. From robbing stores, to gutting phones.

redmd

Posts: 1868; Member since: Oct 26, 2011

"more than 2,000 warranty claims a week" that's brutal. But no biggie, Apple is a trillion dollar company.

strategic_developer

Posts: 1627; Member since: Jul 17, 2018

I'm surprised they didn't just bring the iPhone clones in and try get a warranty claim. Poor Apple. China biggest pirates of Windows XP, found a way to pirate IPhones right from underneath Apple nose. Theifs Re now less and so are sales. So much for China Mobile giving Apple. It's edge over Samsung sales. 2000 phones a week. Seems they would at least open the phones to begin with. I mean they check for water damage.

sissy246

Posts: 6711; Member since: Mar 04, 2015

Just came across this, interesting. https://m.youtube.com/watch?v=o2_SZ4tfLns

Vokilam

Posts: 906; Member since: Mar 15, 2018

Thanks for the video sissy246. As a renewed iphone fan, this is an eyeopener.. I have been to apple store twice with a problem both times there was no charge at all ($0.00) paid. Both times my problem was solved: once it was just software reset, second time I got device replaced without paying a penny, it was almost a 2 year old device with a power button that didnt work right. But obviously others arent so lucky.

sissy246

Posts: 6711; Member since: Mar 04, 2015

Wasn't saying it is true or not true, just interesting because i have never heard any of this.

peace247 unregistered

just an excuse to stop 3rd party repair services....apple is really pathetic.

whatev

Posts: 1999; Member since: Oct 28, 2015

Apple should sue the people doing that, I guess that way they’d never do it again

Leo_MC

Posts: 5761; Member since: Dec 02, 2011

Considering that this number of "broken" devices was added to the number of real defective devices, it's safe to say that Apple devices break even less than what the official figures are reporting.

htcisthebest

Posts: 421; Member since: Nov 15, 2011

Good for Apple. They reaped off their customers with subpar hardware specs. Now it's time for them to get scammed.

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