Accounting rule change expected to take effect for Apple soon
While Apple has until December of 2010 to implement new rules for reporting its earnings, a report predicts that Apple will adopt the changes by its next financial quarter.
In his latest research note to investors, analyst Gene Munster with Piper Jaffray said that the changes to generally accepted accounting principles (GAAP) from the Financial Accounting Standards Board, formally adopted Wednesday, will boost the company's reported earnings per share from $5.71 to $8.21. In addition, he believes the impact in the 2010 fiscal year will go from $6.00 per share to $8.90.
Munster has raised his price target for AAPL stock to $235, up from $186.
Apple heavily lobbied the FASB in an effort to change the GAAP rules. Under the previous restrictions, the company was forced to use "subscription accounting" and spread revenue from the iPhone and Apple TV over two years.
"However, the vast majority of the value of the device was realized at the time of purchase," Munster said. "While the value at the time of purchase as a percentage of the purchase price is debatable, we believe about 90 percent of the value of an iPhone is realized at the time of purchase. Under the previous rules, Apple was only allowed to recognize 12.5 percent (1/8th) of the revenue from each sale; under the new rules, the percentage will be decided on a case-by-case basis for each given product."
Apple is predicted to provide more details on the change, including when it will be implemented in the company's financial reports, during its conference call for the September 2009 quarter. That quarter, and the company's fiscal year, ends next week.
However, the new rules will not completely close the distance between GAAP and non-GAAP numbers, Munster said.
"Under the previous rules, there was about a 35 percent difference between the GAAP and non-GAAP numbers," he said. "Under the new rules, we expect there to be a less than 5 percent difference between the GAAP and non-GAAP numbers."
For 2009, he predicts a new GAAP earnings per share total of $8.21, while the non-GAAP will be $8.65. For 2009, he projects $8.90 vs. a non-GAAP of $9.30.
In his latest research note to investors, analyst Gene Munster with Piper Jaffray said that the changes to generally accepted accounting principles (GAAP) from the Financial Accounting Standards Board, formally adopted Wednesday, will boost the company's reported earnings per share from $5.71 to $8.21. In addition, he believes the impact in the 2010 fiscal year will go from $6.00 per share to $8.90.
Munster has raised his price target for AAPL stock to $235, up from $186.
Apple heavily lobbied the FASB in an effort to change the GAAP rules. Under the previous restrictions, the company was forced to use "subscription accounting" and spread revenue from the iPhone and Apple TV over two years.
"However, the vast majority of the value of the device was realized at the time of purchase," Munster said. "While the value at the time of purchase as a percentage of the purchase price is debatable, we believe about 90 percent of the value of an iPhone is realized at the time of purchase. Under the previous rules, Apple was only allowed to recognize 12.5 percent (1/8th) of the revenue from each sale; under the new rules, the percentage will be decided on a case-by-case basis for each given product."
Apple is predicted to provide more details on the change, including when it will be implemented in the company's financial reports, during its conference call for the September 2009 quarter. That quarter, and the company's fiscal year, ends next week.
However, the new rules will not completely close the distance between GAAP and non-GAAP numbers, Munster said.
"Under the previous rules, there was about a 35 percent difference between the GAAP and non-GAAP numbers," he said. "Under the new rules, we expect there to be a less than 5 percent difference between the GAAP and non-GAAP numbers."
For 2009, he predicts a new GAAP earnings per share total of $8.21, while the non-GAAP will be $8.65. For 2009, he projects $8.90 vs. a non-GAAP of $9.30.
Comments
Dave
This is the only thing I care about. If this removes Apples need to nickel & dime for iPod Touch upgrades then this could be very positive.
Dave
It should but remains to be seen. Conversely this could also allow Apple to charge for upgrades now on the iPhone OS or AppleTV OS just like any other OS upgrade. We shall see. A good indicator will be to see if and when Apple pulls the $5 Touch 3.1 update off their website.
It should but remains to be seen. Conversely this could also allow Apple to charge for upgrades now on the iPhone OS or AppleTV OS just like any other OS upgrade. We shall see. A good indicator will be to see if and when Apple pulls the $5 Touch 3.1 update off their website.
Honestly, I would expect them to start charging for iPhone OS upgrades along with the iPod Touch upgrades. It would be a nice little shot in the arm for Apple when they need it, not that they do. If it works on the iPod Touch, why not try charging the others? Even though people complain, they still buy the upgrade, and Apple will most likely take advantage of that.
Honestly, I would expect them to start charging for iPhone OS upgrades along with the iPod Touch upgrades. It would be a nice little shot in the arm for Apple when they need it, not that they do. If it works on the iPod Touch, why not try charging the others? Even though people complain, they still buy the upgrade, and Apple will most likely take advantage of that.
Let's just hope they keep it to upgrades and not updates then. $5 or so is still less to complain about than the WinMobile 5 to 6 upgrades, where it was a total wipe of the phone, and not seamless. Most people, though, probably got an iPhone as their first smartphone and do not have any clue about how bad they really were. The iPhone broke the mold for smartphone software, really.
If the $5 charge is what will keep the brilliance going, then so be it.
If it works on the iPod Touch, why not try charging the others?
Not quite sure how well it actually worked on the iPod Touch- the price was reduced 50% from $10 to $5 in less than 3 months. There was speculation that Touch owners weren't buying hence the reduction. I mean $10 is rather high for basically cut and paste and landscape mode when it went to 3.0. Oh and I forgot bluetooth.
Apple wasn't "allowed" to charge for iPhone upgrades? What's the source of that fantasy?
Methinks the doctor needs his accountant ...
or lawyer.
I was wondering how Microsoft was going to give away these programs without charging for them, or taking a write-off. Lo and behold it is now a moot point. Will wonders never cease?
So... Was it:
A) Microsoft secretly behind the scenes twisted arms to get the rule changed so they don't have to subject their customers to what Apple was subjecting theirs?
-or-
A) Microsoft secretly behind the scenes twisted arms to get the rule changed so they don't have to subject their customers to what Apple was subjecting theirs?
-or-
I pick:
C) None of the above.
Apple probably wanted this change mainly because it simplifies accounting and financial reporting.
I pick:
C) None of the above.
Apple probably wanted this change mainly because it simplifies accounting and financial reporting.
Yeah but there is no behind the scenes arm twisting, secret corporate conspiracies, Option "C" is just so vanilla!
Yeah but there is no behind the scenes arm twisting, secret corporate conspiracies, Option "C" is just so vanilla!
Sorry. Sometimes the truth is dull.
Funny how this little rule gets changed when Microsoft releases a device that will be offering significant free upgrades that will add new features, i.e. the ZuneHD. (games and programs are going to be free releases).
I was wondering how Microsoft was going to give away these programs without charging for them, or taking a write-off. Lo and behold it is now a moot point. Will wonders never cease?
So... Was it:
A) Microsoft secretly behind the scenes twisted arms to get the rule changed so they don't have to subject their customers to what Apple was subjecting theirs?
-or-
What you say is very interesting. Twice in the last 2 weeks I have stopped in the Best Buy here 2 blocks from Apple Soho and both times the ZuneHD has been sold out. Didn't know that about MSFT's free releases.