Comments on: Spotlight on Apple's hidden revenue stream

By: Michael Hannon, Holladay, Utah

Michael Hannon, Holladay, Utah — Mon, 06 Apr 2009 19:23:57 +0000

This is just more of the wonder that is Steve Jobs. I think he is a brilliant captain of free enterprise. I have made a small fortune on apple stock. He constantly fids ways to underestimate and tracking market bsevers always bite; and he always outperforms. Although, this one is the law, he plays it down beautifully.

Now I must comment to those that always challenge Apple on "the issue of price." Price is only one lelment in marketing. What good a low price if the procuct lacks quality, is not fun to use, is not user friendly, does not have great customer service, great architecture and is the late comer in the market?

I always take a bit higher price amrtized over the life of the product in order to receive the best product quality (I have not had a crash or freeze in the year I have owned my MacBook), the best customer service (ProCare cost $50 a year and I get an appointment, often on the same day, one on one and they always solve my ignorance — "One to One" cost $100 a year and provides a one on one live class for up to one hour a week), the products are fun to use, they are user friendly, they have great architecture, etc. Oh, did I mention I am still making a bundle on the stock?

Mulligan

By: Jeff E., Tulsa, OK

Jeff E., Tulsa, OK — Mon, 23 Feb 2009 21:29:40 +0000

It's like this…I have a son and he's three years old. Someone (texting on there iphone) runs him over and kills him. I will sue them for not what he currently is worth but what he would have been worth when he grew up and became a nuclear surgeon. You can never bank on tomorrow. (except for the fact that we will all be judged according to our sins, and very soon!).

By: Adam Smith, St. Louis, MO

Adam Smith, St. Louis, MO — Wed, 21 Jan 2009 16:16:48 +0000

Gotta echo robert and esp. turley…just look at the CF statement, folks. Cash is a fact…thats the stuff that goes into AAPL's bank account.

AAPL gets $500-$600 in cash any time a phone is sold (and is free to reinvest…meaning they get all of the economic benefit of upfront recognition)…but on the PnL it gets broken up in bite sized pieces.

Earnings are an opinion. they can't be "reinvested." Cash is reinvested. The quicker people embrace that axiom, the easier life will be.

By: Robert Peery, Austin TX

Robert Peery, Austin TX — Wed, 21 Jan 2009 15:11:14 +0000

From the comments below, it is amazing how many people don't understand Apple choice of using subscription based accounting.

By: Andy Zaky, Huntington Beach, CA

Andy Zaky, Huntington Beach, CA — Wed, 21 Jan 2009 07:09:32 +0000

TO Brian and Yale regarding whether Apple did or did not have a choice. Read the comments by Apple in the conference call transcript. They outright say they have a choice. They say it in that Q2 report I have quoted and they say it again in Q3 2008.

By: Turley Muller, Memphis

Turley Muller, Memphis — Wed, 21 Jan 2009 06:38:25 +0000

Some commenters are confused. The subscription accounting has nothing to do with AT&T and service contract. The AppleTV is accounting for over 2 years as well. If Apple promised free OS X upgrades with a Mac purchase, then it too, would use subscription accounting. Yet, Apple didn't give away free Tiger and Leopard etc (OS X 10.4 & 10.5) so that's why Mac has normal accounting.

Apple says when one buys an iPhone, future versions of OS are included in the purchase price. Basically that means free to the consumer. Therefore, Apple hasn't fully delivered the product offering at time of purchase when the consumer pays and receives the device. Since Apple has the consumers money yet still owes future software that may become available, it can't recognize the full purchase price of the iPhone upfront, when cash is received. The same is true for AppleTV.

Apple may not actually release new OS versions, it hasn't guaranteed that, only promised that if it does, there won't be any cost to upgrade. That's why touch owners had to pay for 2.0 and iPhone owners didn't.

I think Apple didn't want to charge because it may delay/dissuade users to upgrade, which will interfere with Apple's long-term software and functionality roadmap. Plus, while consumes are accustomed to having to pay for new OS versions for PCs, they are not for mobile devices, that might leave a bad taste in peoples mouth.

By: Brett, San Luis Obispo, CA

Brett, San Luis Obispo, CA — Wed, 21 Jan 2009 03:43:00 +0000

Somewhat fortuitously, the subscription accounting helps maintain revenue stream on the books through this economic calamity. During the last recession, Apple had enough cash reserves to weather the storm without significant layoffs. New product development typically takes 18-24 months. The last recession lasted slightly longer than that (and the current one will last even longer), but companies that continue to innovate and develop through the downturns, emerge with products ready for the market. (Like the iPod and iPhone).

By: Yale, Atlanta, GA

Yale, Atlanta, GA — Tue, 20 Jan 2009 21:08:30 +0000

This is a terrible article. This is NOT NEWS. Anyone who even takes a look at the 10K filings from Apple, can see clearly that they are doing this amoritization due to their new deal with AT&T, where the cost of the phone is subsidized over the life of the plan. This is a change from when the Iphone 1.0 was purchased without subsidies, and can be booked at 100% of value. This is to comply with Sarbanes-Oxley. It's not a choice. It's the law. What? Apple obeying the law in its accounting practices? What's next? "Spotlight on Google's hidden Email System"?

ex ped: Foolish me. I should have just pointed readers to Apple's 10ks. What was I thinking? As for Sarbanes-Oxley, see the following comment.

By: Brian

Brian — Tue, 20 Jan 2009 21:06:25 +0000

This accounting is prescribed by Sarbanes Oxley. Apple didn't have a choice, especially if they wanted to provide free updates, which is a smart move because it keeps people on the same OS and that saves a lot of support time and eliminates a lot of customer complaints, etc…

Sooner or later, these profits all get counted and we will see what happens at that point.

ex ped: According to Zaky, Apple did have a choice. It could have charged iPhone owners $9.95 for OS updates, as it does for the iPod touch, rather than providing updates for free.

By: Hunter Wylie, Hillsboro Oregon

Hunter Wylie, Hillsboro Oregon — Tue, 20 Jan 2009 20:49:39 +0000

Philip Elmer-DeWitt must have a degree in marketing to say something this asinine. GAAP is here to protect us against this exact thing. Inconsistent revenue reporting has dire consequences. Philip is asking us to reap what we can today and forget the consequence of tomorrow (must be an oil futures man). Deferred revenue = moderating future liabilities…. Something all of us should of had a history lesson in during the past 6 months with the banking industry.