This is a complete download and reinstallation of the entire binary application, in which only user data is saved. This should mitigate any permanent damage during the update, because if the update itself is damaged, it is just a matter of returning to what was previously installed on the device, which prevents the loss of user data.
From Apple Developer Docs :
When a user downloads an application update, iTunes installs the update in the new application directory. It then deletes user data files from the old installation into the new application directory before uninstalling the old installation. Files in the following directories will be saved during the upgrade process:
Although files in other user directories may also be moved, you should not rely on them to be present after the upgrade.
This does not say out loud that it is completely reinstalled, however in the first paragraph it is completely clear why this is so.
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