I think you're deliberately missing the point here.
It's not whether it happens on-device, off-device, in the cloud, in the tubes, or anywhere.
It's that Apple said that they would not do this, and now they're doing this. You can make technical quibbles that what they promised was slightly different to what they're doing, but they're irrelevant. The core promise of "what happens on your iPhone stays on your iPhone" is being broken. It's that breaking of the promise that people are angry about. Does that make sense?
Am I missing something more than "but it's happening on-device!"?
Your answer is "no".