Giving away your product for free to every customer that complains seems like a quick way to go out of business.
If you buy a faulty ipad from apple, they'll certainly give you your money back, but they'll make you return the ipad.
It's hard to explain, but I've lived through this so many times, and seeing an angry customer turn into a better marketing resource than any adwords campaign, and getting the warm fuzzies at the same time, is good business in my book.
Sure, but Apple won't remotely disable your device until you turn it in for a refund. If you want to preëmptively cut off services, you should initiate the refund. That leaves the customer with a free (albeit broken) product. This is partly why few companies remotely disable devices after purchase, particularly as a retaliatory measure.
Loosing one or two less future sale probably makes up for the loss.
Understanding that one customers frustration and improving the experience for other new future customers could literally be priceless.
The marginal cost to make more units is dirt cheap, I'd be surprised if it's >$20 - the cost to develop the whole system in the first place is the hard part on the technical side of things. Then there's the business side which they just blew pretty bad. Giving the customer the hardware costs them almost nothing - write it off to make the customer happy. As long as you don't have to do that too much, it's perfectly sustainable.