A reason why it is so difficult to warranty Apple products in PH

Discussion in 'AppleTalk' started by Adarna, Oct 10, 2018.

  1. Adarna

    Adarna Active Member

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    https://www.theinformation.com/articles/inside-apples-war-on-iphone-fraud-in-china

    Due to its critical nature as it address a pet peeve for most users who had experienced "bad service" with local Apple service center here is the full article to somewhat answers our frustration .

    Five years ago, Apple was forced to temporarily close what was then its only retail store in Shenzhen, China, after it was besieged by lines of hundreds of customers waiting to swap broken iPhones for new devices, according to two former Apple employees who were briefed about the matter. In May 2013, the Shenzhen store logged more than 2,000 warranty claims a week, more than any other Apple retail store in the world, one of those people said.

    After some investigation, Apple discovered the skyrocketing requests for replacements was due to a highly sophisticated fraud scheme run by organized teams. Rings of thieves were buying or stealing iPhones and removing valuable components like CPUs, screens and logic boards, replacing them with fake components or even chewing gum wrappers, more than a half-dozen former employees familiar with the fraud said. The thieves would then return the iPhones, claiming they were broken, and receive replacements they could then resell, according to three of those people. The stolen components, meanwhile, were used in refurbished iPhones sold in smaller cities across China, two of the people said.

    “In the old-school world, this would be a car chop shop, where you would take all the pieces off and sell them,” said Kyle Wiens, co-founder and CEO of iFixit, the popular Apple gadget repair site. “Now they’re doing that with iPhones.”

    After an all-out offensive by Apple to combat the scheme, the company managed within four years to dramatically reduce the rates of fraud related to repairs in its stores in China. But the previously unreported episode—along with its sophistication and scale—offers a window into the challenges faced by Apple, the world’s most valuable company, as it seeks new markets for growth. Apple is now confronting similar fraud schemes in other parts of the world, one person with direct knowledge said.

    Those challenges are particularly relevant now, as tensions between the U.S. and China escalate over trade, with the theft of U.S. intellectual property at the center of the quarrel. Like many foreign consumer brands in China, Apple has long battled counterfeiters, who churn out fake iPhones and operate imitation Apple stores, copying everything from store designs to staff T-shirts.

    This article is based on interviews with more than a dozen former Apple employees, all of whom observed parts of the fraud firsthand and agreed to speak on condition of anonymity. Apple declined to comment.

    Burgeoning Market

    When Apple released the iPhone in China in 2009, the company had one retail store in the country. It lacked an agreement with China's largest carrier, China Mobile. It didn't even have an iPhone compatible with China Mobile's network.

    Still, sales gradually took off. By 2012, Greater China represented 15% of Apple’s net sales, up from less than 5% in the first half of 2010, when Apple first disclosed revenue from the region. By 2012, Apple had opened eight more stores, including branches in Shenzhen and Chengdu.

    Apple executives began to tout China as one of its most important markets, opening dozens of new retail stores in the country over the next two years. Apple’s revenue from Greater China, which includes Hong Kong, Macau and Taiwan, peaked in 2015, when it comprised one fourth of global revenue.

    But since then, low-cost smartphones from homegrown competitors have eaten into Apple’s sales and market share in China. Annual revenue from the region declined in fiscal 2016 and 2017, and Apple now ranks fifth in China in terms of smartphone unit sales.

    Last year, Apple sold between 40 million and 50 million iPhones in China, or about one fifth of worldwide iPhone sales, according to research firms Canalys and Counterpoint Research. For the first three quarters of the current fiscal year, the company’s China revenues began to grow again, mostly due to more expensive iPhones rather than increasing unit sales, analysts say.

    In China, Apple has mostly shied away from aggressively pursuing suspected fraudsters through the legal system. The company is wary of pushing back too hard on customers who could be legitimate, which risks public backlash and negative publicity in state-run media, three people with direct knowledge of the fraud said. Apple has often been slammed by Chinese media, including a high-profile segment on the country’s biggest state-run broadcaster in 2013 over its iPhone warranty policy that prompted an apology from Apple CEO Tim Cook.

    “Getting police involvement related to consumer affairs is difficult in China,” one of the former Apple employees added. “It’s just not worth it, and it’s bad PR.”
     
    #1 Adarna, Oct 10, 2018
    Last edited: Oct 10, 2018
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  2. Adarna

    Adarna Active Member

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    A Booming Black Market

    The result is that Apple has found itself in a constant cat-and-mouse game with the fraudsters in China.

    In the first six months of the Shenzhen store opening, weekly iPhone warranty claims, including repair and replacement requests, jumped from about 200 to more than 2,000, according to internal data reviewed by The Information. That was almost three times more than Apple’s flagship store on 5th Avenue in New York—its busiest store in the world, the person said.

    Thieves would stand outside stores with suitcases full of iPhones with some of the original components stripped out and replaced with inferior parts, two of the people said. The fraudsters would hire people to pretend to be customers to return them, each taking a device to stand in line at the Genius Bar, the people said. Once the phones were swapped, the actors would pass the new phones to the fraudsters and get paid for their time, the people said.

    Warranty claims in China typically exploded within months of each iPhone release, according to internal data reviewed by The Information. Some fraudsters grew disruptive when their requests for replacements were rejected, which occurred at one point in 2013, prompting a brief closure of the Shenzhen store for security reasons, two of the people said.

    People close to Apple say most of the schemes originated in Shenzhen, a southern Chinese city well-known as a hotbed for criminal organizations because of its proximity to Hong Kong, which is a center of activity for Chinese crime gangs known as triads. Shenzhen is also China’s biggest manufacturing hub for electronics, and it is the location of the country’s renowned Huaqiangbei electronics market, which was the primary destination for the stolen parts.

    Underpinning the booming black market for used iPhones and stolen components are the aspirations of China’s fast-rising consumer class. Those unable to afford new iPhones buy cheaper secondhand devices instead. China is the world’s top destination for used iPhones, accounting for more than a third of active devices around the world as of July 2017, according to market-research firm Newzoo.

    In a variation of knockoff iPhones, a market for so-called Frankenphones has sprung up, made up of a combination of fake and real components. Because Apple only makes a handful of smartphone models, it is easy for thieves to develop expertise in building the devices, Mr. Wiens, iFixit’s CEO, said.

    The groups that build and sell these iPhones usually buy components from the Huaqiangbei electronics market, which acts as a clearinghouse for the parts, according to Lucius Yang, an operation manager at supply-chain consultant LeelineSourcing.

    “You can’t really call them fakes as they do have some genuine parts and run modified versions of iOS,” Mr. Yang said. The iPhones are described in online marketplaces as used or refurbished devices to limit scrutiny of their defects, he said, adding that Chinese consumers in fourth- and fifth-tier cities are the main customers for these devices.

    Fighting Back

    At first, store employees would swap broken iPhones for new ones as long as they didn’t appear intentionally damaged, as was the policy in the U.S. and elsewhere, more than 10 former Apple employees familiar with the matter said. Apple executives initially weren’t aware of the scale of the fraud, originally estimating that it represented less than 10% of warranty claims in China based on anecdotal evidence, one of the people with direct knowledge of the fraud said.

    A turning point came in 2013, when an Apple data scientist discovered a way to measure the fraud by counting the number of iPhones that switched to new Apple IDs after the devices were replaced under warranty, the person said. Typically, a legitimate customer who gets a replacement logs into the new phone with their original Apple ID, which should match the broken iPhone that they returned to Apple, the person said.

    But in fraud cases, replacement phones were usually registered with different Apple IDs because the devices immediately changed hands, the person said. The data scientist discovered more than 60% of replaced iPhones in China were getting new IDs, the person said.

    Apple adopted the fraud methodology, known internally as Mismatch, and eventually had as many as 300 employees tackling the problem, which soon became material to the company, the person said. In 2013, Apple set aside $1.6 billion at the start of its fiscal year for global warranty claims, but ended up spending $3.7 billion on them in the period, according to the company’s annual report for that year. Fraud in China was a signficant contributor to warranty claims during that period, the person said.

    To slow down fraud at its retail stores—a main point of vulnerability—Apple developed a reservation system, which required customers to make appointments online with proof of ownership before they could file claims, according to more than 10 former Apple employees. However, the system was soon swamped with hackers who exploited vulnerabilities in its website to snap up the time slots, one of the people said.

    Apple developed diagnostic software that allowed retail employees to quickly detect fake parts in phones customers were attempting to return without having to disassemble the devices, the former Apple employees said. However, fraudsters sought to evade detection by disabling iPhones so they couldn’t be turned on, two former Apple employees said.

    New Techniques

    Some fraudsters came up with another tactic to make sure older iPhones they were seeking to replace qualified for Apple’s free one-year warranty. They obtained Apple customer records, including serial numbers, for iPhones that had already been sold in China—either by bribing Apple call center employees or through phishing attacks aimed at them, Apple investigators believed. They configured the iPhones they intended to return with the stolen serial numbers. In some cases, they etched stolen serial numbers onto the back covers with specialized equipment, one of the former Apple employees said.

    Last year, police in China broke up a ring of suspected data thieves who were believed to have sold Apple customers' personal data, including their iPhone serial numbers. The arrests, which included current and former Apple employees and contractors, were related to the warranty scams, the person said.

    To combat the use of stolen serial numbers, Apple came up with a screening method—known internally as Zombie Check—that was a good indicator that a broken phone submitted for replacement was fraudulent. The technique tested whether serial numbers for the broken iPhones held for inspection were also associated with iPhones still using Apple’s online services, the person said.

    It didn’t help Apple’s cause that internal procedures for screening warranty claims often leaked to suspected crime gangs, giving them the chance to develop new workarounds, the person said.
     
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  3. Adarna

    Adarna Active Member

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    Scenes in Stores

    As its screening of warranty claims tightened, fraudsters sought to coerce and bribe Apple retail employees, five people familiar with the fraud said. In one instance, a manager at an Apple retail store in Chengdu was threatened with a cattle prod outside the branch when he was uncooperative with a fraudster, according to one of the people. Apple reported the issue to local authorities and began providing security guards to escort employees to and from the store, the person said.

    Rejected warranty claims sparked angry scenes in stores, as customers suspected of fraud grew irate when their iPhones weren’t accepted, according to more than six former Apple employees who witnessed the schemes firsthand. Partially for security reasons, Apple stopped authorizing iPhone replacements in stores and began requiring that all broken iPhones first be sent to distribution and repair centers for inspection, more than 10 former Apple employees said.

    It rented space outside Shanghai from assembly contractor Pegatron to test suspicious devices before replacements could be authorized, one person with direct knowledge of the fraud said. However, the Shanghai depot was constantly overwhelmed, requiring Apple to open four more screening centers, including ones in Singapore and another in Elk Grove, Calif., which handled warranty repairs from Hong Kong, the person said.

    These centers revealed the extent of the fraud. By 2015, hundreds of thousands of fraudulent iPhones were being returned in China and Hong Kong every month, according to internal company data reviewed by The Information. By 2016, Apple had made some progress, reducing fraud in China to between 30% and 50% of warranty claims, depending on the iPhone model, according to the data. Still, those rates remained much higher than in the U.S., where fraud was estimated at between 5% and 10% of claims, the data show.

    Meanwhile, Apple also made tweaks to its supply chain to detect component theft. After a large batch of defective iPhone batteries disappeared from an assembly line, Apple began dipping batteries in a special dye that could only be seen under a high-frequency light to authenticate them during repairs, the person said. Apple’s new iPhone CPUs also are coated in a waterproof sealant that can be seen under certain wavelengths, offering another countermeasure, the person said.

    According to the person, the company's ability to unravel the fraud schemes was hampered by its secretive work culture, which forces departments such as retail, supply-chain logistics, manufacturing and AppleCare to operate in silos. However, when Mr. Cook was finally briefed on the issue, he was on board with tackling the problem, the person said.

    The various countermeasures in both China and Hong Kong eventually reduced fraud rates in the region to about 20% of repair claims from more than 60% at its peak, the person said. In 2017, Apple’s warranty expenses declined for the first time since the iPhone’s release in 2007, shrinking to $4.32 billion from $4.66 billion a year earlier, the filings show.

    Fraudsters are now shifting to other countries. Apple has seen warranty fraud pop up in the United Arab Emirates and Turkey, where Apple has a handful of retail stores and a number of authorized service providers, the person said.

    End of article.
     
  4. bacchus_3

    bacchus_3 Well-Known Member

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    ^^ the difficulty with warranty claims in the PH is the turnaround of supplies from Singapore and has least to do with the Chinese frauds. Unless I've missed the current trends in warranty claims issues? Add to that that some service centers do have questionable technicians handling particular warranty incident claims.
     
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  5. Dipp

    Dipp Active Member

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    yeah - never had issue with warranty .
     
  6. ice

    ice PhilMUG Addict Member

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    since the article mentioned Shenzhen...

    It reminded me of this guy...
     
  7. Adarna

    Adarna Active Member

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    Good point but I have experienced in the past the need to show proof of purchase before warranty claim would be honored.

    I was wondering what was the point of the serial number verification on apple.com if it isnt a good enough proof that the Apple product was under warranty and should be fixed for manufacturer's defect.

    BTW does Apple Stores abroad still honor the swap out iPads with bad batteries? I remember reading that even iPads released earlier than 2013 can still get free replacements if the battery cant hold a long charge.
     
  8. ice

    ice PhilMUG Addict Member

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    Personally, I think the problem with PHL Apple warranty is that no one went to Apple, have their guys trained, bought equipment and stocked up on parts.

    Here in SG, we have A.Lab which is an authorized service center

    I honestly feel that the Apple market locally is just too small for any business to invest on the necessary resources to be the "authorized service center"
     
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  9. extremeshot

    extremeshot PhilMUG Addict Member

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    100% yes. Questionable and shady. We as customers should not be fooled into thinking that those big local companies equate to better service. I have a very bad experience with one such service center when I was trying to file a warranty claim for my iPhoneX's dead pixels in the lower lefthand corner. My phone has been babied since day 1 and has never left a military-grade drop tested case (or however you might call those lol) months before the dead pixels happened. Brought it to that service center to be tested, the seemingly non-friendly frontline staff brought it to their service area at the back, and when he came back, viola, there's a scratch conveniently and perfectly placed on that same corner.

    My only fault is I trusted them so much. What I should have done is show that staff that the unit's body is flawless before handing it over. I (and they) probably know that without that proof, it will turn into a 'he said, she said' conversation w/c I had very little interest in participating. I had to escalate to Apple directly (via chat) and later on brought it to another much better service center and I got the warranty claim granted - lessons learned. I never brought the shady technician up anywhere in my escalation to Apple and they still granted my warranty claim.
     
  10. bacchus_3

    bacchus_3 Well-Known Member

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    The issue with these technicians/repair centers is once they say these are the steps we don't complain to Apple directly of the inconvenience. Having been familiar with how warranties are honored in the US for Apple products I remind all technicians these are the steps and if they don't honor Apple's SOP then either they don't get to service my device and I file a complaint to Apple Customer rep, or they follow Apple procedure. It does help to call Apple's support number and get details on what needs to be done instead of going straight to a service center. It's an extra procedure but for Philippine warranty claims their warranty service ticket number tracks the progress of how your device is serviced...so when they get tagged as the one to fix your device, they better do their job otherwise you can call Apple Service rep again and complain. At least that's how I've avoided issues with questionable technicians :)
     
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  11. bacchus_3

    bacchus_3 Well-Known Member

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    I've had my devices worked on by these technicians. They know what they're doing. There's nothing particularly different with what and how warranties are done in Singapore, Malaysia, the US and here in the PH. You just have to watch out for those guys that ruin the experience - the bad stories you read in this forum.

    I believe otherwise though on the perceived market size in the PH. Compare it to a decade ago - I may have to agree then, but now? Apple certified shops are accessible even across different cities outside Metro Manila than back then.
     
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  12. ice

    ice PhilMUG Addict Member

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    Actually, there's a shop near our office than can repair iPhones...

    Big difference is... (my personal experience)

    Screen replacement - they were willing to try to just change the glass, not the entire module. Price was less than half of what A.Lab was charging.

    Once they repair the unit, they cannot guarantee that the phone will remain water proof.

    ***
    So yes, technician is there, but having an Apple service center means you can even have your earbuds replaced if they fail in less than 1 year, no questions asked (Apple Care+)

    ***
    As for the accessibility of certified shops, they only need to sell devices.

    But investing in an Apple approved authorized service center is different. For the "business" to work you need devices to fail within the 1st year of purchase.
     
    #12 ice, Oct 10, 2018
    Last edited: Oct 10, 2018
  13. makinao

    makinao Active Member

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    AFAIK, Singapore is the regional center for Apple, and parts are all stocked there. Here in the Philippines, none of the authorized service centers have inventories of parts. When a local service center diagnosis requires a part, it has to order it from SG, wait for it to arrive, and install it within something like 48 hours of its arrival. If it is not installed in that time, the part has to go back to SG.

    The only problem I've had with having Apple devices serviced here is some years ago when local customs was really slooooooooooooow, either out of inefficiency or corruption, or both.
     
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  14. ice

    ice PhilMUG Addict Member

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    I'm not sure about the "regional center" thing.

    As I remember...
    (sorry for using iPhones as an example, I never had issues with my other Apple devices)

    During iPhone 4 days, something goes wrong, you go to your telco and 1-1 exchange (funny thing, locals will go to their telco after a year and complain about battery life... They will get a refurbished device with extra 3 months warranty)

    Later, A.Lab opened (+ another store) which was Apple's Authorized Service Centre, you go there for repairs, various issues (remember the 6 Plus iSight) and 1-1 exchange (Apple Care+) - we lost the 1-1 exchange before the warranty ends as they can diagnose battery issues :mad:

    Apple Store also does repairs (I went there once since I can't get an early appointment with A.Lab) and a Genius told me that their people are independent from A.Lab which is another company.

    So basically, a company like A.Lab opened here to be Apple's Authorized Service Centre, they have trained guys, available parts and proper Apple equipment for repairs.

    ***
    I don't expect Apple to open a store locally... But maybe (if the numbers are there), a local company can open a local Authorized Service Center.
     
  15. Zoey

    Zoey Member

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    I have always had good luck with the service centres of Beyond the Box. Had an iMac, Air, and MacBook Pro fixed and parts replaced with no hassle at all. Perhaps it because I bought AppleCare for all of them.
     
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  16. makinao

    makinao Active Member

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    There have been Apple Authorized Service Centers in Metro Manila for decades. I once took my wife's iPad to MSI Digicare (which is authorized), and I gathered the supervisor was on the phone directly to Apple SG and the replacement was authorized right then and there. The replacement arrived a week later. Same thing happened when I needed a battery replacement. Technician gets on the phone with Apple SG and replacement arrives 2 weeks later.
     
    #16 makinao, Oct 18, 2018
    Last edited: Oct 18, 2018
  17. mongkee

    mongkee Well-Known Member

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    I've been fortunate enough to have only needed to claim warranty once... on my previous iPhone 6 Plus which had a screen defect (a very light gray spot when displaying white on-screen). Took it to BTB, they took it in and advised me it was to be replaced, a week later they issued a replacement.

    This was a couple of years ago though, so I dunno how it is now.

    But aside from Apple, I did have a good experience with a warranty claim with LG on my smart TV. Long story... but the jist is that they recommended replacement of my defective TV and within 2 weeks they had already authorized its replacement.

    My point is, I think warranty claims here in the PH can be good naman if the manufacturer/merchant/vendor/dealer wishes it to be so. But also I think pinoy consumers in general have matured enough that part of their decision to purchase something is knowing the quality of after-sales service they're gonna get after the purchase
     
  18. ice

    ice PhilMUG Addict Member

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    For me the magic word is 2 weeks... Can't they really stock up on parts?

    So the Authorized Technician is available, but parts is a different story?
    *I admit that we can also use local car dealerships as an example where they are an Authorized Service Center, but parts are not readily available*

    When my daughter was using a 5S she kept breaking her earpods and I decided to get the best solution! AppleCare+ she would just go to A.Lab and have her non-working earpods replaced on the spot (for 2 years, she was there almost every 2 months...).

    For me, that's how Authorized Service center is defined. No receipt needed, they just key-in your IMEI (my daughter's case, the earpods serial number) and a replacement there.
     
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  19. makinao

    makinao Active Member

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    No. As I already said, they don't stock up on parts. Its apparently an Apple South East Asia policy, so us mortals here in the Philippines have no say on the matter. Therefore, "authorized" means they can only carry out repairs using original parts coming from Apple SG. Replacement also means they have to wait for the exchange unit to arrive from SG.
     
  20. bonjourjb

    bonjourjb New Member

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    Could you share which service center you had been to so we can avoid them too?
     

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