According to The Information news, fraudulent iPhone repair reports from China cost billions of dollars to Apple, over the period of five years. In May 2013, the only Apple’s retail store in Shenzhen, China then was forced to temporarily shut down, as it was surrounded by line of hundreds of customers who were waiting to exchange broken iPhones for new device. The store logged over 2000 warranty claims a week.
After critical investigation, Apple found the rising requests for iPhone replacement was due to a fraud scheme operated by a gang of thieves. The report said, they were stealing or buying iPhones and removing valuable components which include screens, CPUs, and logic boards, replacing them with fake ones. According to former Apple employees familiar with the fraud, even chewing wrappers were used to replace the components.
The thieves would then enter the Apple retail store, claim the iPhones to be broken, and replace with a new device. Following the replacements, the thieves resold the iPhones and for the stolen components, they were incorporated in refurbished iPhones and made available to sell in smaller cities across the country.
In the same financial year, Apple invested nearly $1.6 billion for warranty iphone repair costs, but spent over $3 billion due to large fraudulent claims in China. In that period, Apple estimated 60% of warranty repair in Hong Kong and China as being fraudulent.
The company tightened the norms on swapping out faulty iPhones, ceased allowing walk-in repairs, and reservation systems were made to ensure that proof of ownership was provided. Such practices led to a drop in fraudulent repairs in China, from the peak of 60% to approximately 20%.
Now, all warranty iPhone replacements are required to send off to particular repair centers for rigorous testing. The company also included certain security measures to the iPhone components such as invisible dyes on batteries and CPUs are coated in waterproof sealants that are tuned to particular wavelength.
It is Apple’s internal secrecy that took the company too long to get on the problem which delayed manufacturing, supply chain logistics, AppleCare department to collaborate and work on effective solution, according to The Information report.
Although the fraudulent iPhone repair in China have decreased to great extent, the company is now facing similar issues in other regional markets including United Arab Emirates and Turkey.