Apple & Questionable Accounting (ThinkSecret 03.19.04)
well, it's too long to post here completely, but here's a link to today's Think Secret article.
essentially, apple isn't embezzling or anything, but if this is true, they are "selling" their products to the apple stores for a significantly lower amount than other resellers, meaning their profit per unit is higher, making the apple stores appears more profitable (and also making it less desireable for other resellers to compete).
we've all seen companies get blown to bits over anything smacking of "questionable accounting," and you know when the press finds out about this, they will not hesitate to plaster it all over the headlines. but i'm not sure how much of this is actually illegal. or if the true problem is that this over-inflates the good cheery feeling about the retail stores and means that the stock gets over inflated?
anyway, i'm not an accountant, and never plan to be, so try not to read anything into my comments other than questions by a web designer on five hours sleep. any other comments?
essentially, apple isn't embezzling or anything, but if this is true, they are "selling" their products to the apple stores for a significantly lower amount than other resellers, meaning their profit per unit is higher, making the apple stores appears more profitable (and also making it less desireable for other resellers to compete).
we've all seen companies get blown to bits over anything smacking of "questionable accounting," and you know when the press finds out about this, they will not hesitate to plaster it all over the headlines. but i'm not sure how much of this is actually illegal. or if the true problem is that this over-inflates the good cheery feeling about the retail stores and means that the stock gets over inflated?
anyway, i'm not an accountant, and never plan to be, so try not to read anything into my comments other than questions by a web designer on five hours sleep. any other comments?
Comments
BASTARDS! Lying, conniving, greedy, manipulative bastards.
I'm not surprised, however, that it's come to a lawsuit, and that some resellers have been quick to interpret these invoices in the worst possible terms. There's been a steady stream of retailer horror stories over the years, which the Reign of Steve has not in any way stanched.
It will be interesting to see what comes out in court. I really hope Apple isn't this dumb. Anderson did a really good job of keeping the company conservative and squeaky-clean in every other respect. This would be a major lapse at a time when there's a lot of attention on corporate financial conduct (hello, Martha!).
HOWEVER, once it is included and made public in the court case, you know media will jump all over it, reporting it, and the buying public will buy it as truth before the final settlement is ever reached. this does not presume guilt or innocence, just that this is the WORST kind of publicity at the WORST possible time.
I already know that I am in the minority with my assessment so don't bother flaming me. I have a predisposition to distrust and dislike Apple Corp. in the same way that many of you distrust and dislike MS. MS screws their enemies. Apple screws their friends. Which is worse?
Here, you might need this...
Originally posted by Eugene
Breaking News: 1st-party operations get a better deal than resellers. OMG!
sarcasm noted. yeah, i thought that too. i'm just saying this is the exact kind of negative spin that apple didn't need when the taste of enron's and martha's aren't out of the public spotlight yet.
heck, if i held apple shares, i might sell a healthy percentage now, just in case the price takes a hit. and of course, if this word leaks out, everyone will follow suit, which will engender more worry, more selling, slide, slide, slide...
You're getting your Apple's mixed up. Apple Corp. is the Beatles company. Apple Computer is the one we're talking about.
There are laws (quoted in the lawsuit) that forbid favorable pricing if it can be proven that it put other vendors out of business or violated anti-trust laws. Equally as serious is whether there was a deliberate attempt to deceive shareholders with misleading financial reports, particularly about the stores profitability. You just can't lie - if Apple did or has done, without penalties.
Originally posted by MacsRGood4U
Mac Voyer,
You're getting your Apple's mixed up. Apple Corp. is the Beatles company. Apple Computer is the one we're talking about.
There are laws (quoted in the lawsuit) that forbid favorable pricing if it can be proven that it put other vendors out of business or violated anti-trust laws. Equally as serious is whether there was a deliberate attempt to deceive shareholders with misleading financial reports, particularly about the stores profitability. You just can't lie - if Apple did or has done, without penalties.
How are they lying about profitability exactly? Disgruntled former resellers are going to have are hard time proving Apple is engaging in "unfair competition" when they're all selling at MSRP. It's also tough to call Apple Stores a tool for anti-competitive practice when there are only 70 or so out there.
Variable invoice pricing doesn't say anything about anything other than the obvious.
Originally posted by Eugene
How are they lying about profitability exactly? Disgruntled former resellers are going to have are hard time proving Apple is engaging in "unfair competition" when they're all selling at MSRP. It's also tough to call Apple Stores a tool for anti-competitive practice when there are only 70 or so out there.
Variable invoice pricing doesn't say anything about anything other than the obvious.
yeah, that's the thing, it's not like apple was getting all these units cheaper AND selling them cheaper than the competition. and i would assume there's a bit more overhead apple has to cover for their retail presence than some of the "spare closet" resellers i have visited in the past.
i guess it depends on the contracts that apple has everyone abide by, and if it expressly says that apple pays the exact amount as everyone else for the units, or if that's just how some resellers interpreted steve's statements of "we're all playing by the same set of rules." (he didn't actually say that -- that's my paraphrasing. plus, while the difference between apple's own stores and resellers is distinct, if they can't show that apple necessarily RAISED prices for resellers during that time, then all apple is doing is eating some of their own cost to sell units.
the flip-side is i am sure that apple would love to have total control of sales all the way through the channel, as well as the brand awareness and such, and if some of the more-dodgy resellers were to disappear, apple wouldn't raise too much of a fuss.
Originally posted by Gabid
Could there be any volume discounts at play here?
I was just wondering the same thing.
Originally posted by Mac Voyer
I was just wondering the same thing.
How does that work when Apple is giving itself a discount? That is like taking your money out of one pocket and putting it in another.
As for the lawsuit in general, I believe the independent resellers have a very valid case against Apple's preferential treatment of the retail stores. It is pretty ridiculous, look at the ipod minis. Apple stores 100. Compusa and Fry's 20, Best Buy's 5. Sounds like a pretty unfair allotment.
Apple's pilot with Best Buy probably failed because of poor inventory allotment, non-timely receipt of new products and low inventory.
I hope, before this lawsuit leads to a lot of bad press for Apple, Apple comes to a fair agreement with the resellers that is beneficial to both parties without alienating the resellers. With Apple's coporate arrogance it appears to be highly unlikely.
Originally posted by Eugene
How does that work when Apple is giving itself a discount? That is like taking your money out of one pocket and putting it in another.
Not if it's the same deal as the other resellers got, which is the beef of the lawsuit.
If Apple has a volume licensing deal, and the Apple Stores *collectively* (which would be my guess) qualified for levels that individual retailers did not, but *could have*, *if* they had ordered that many... that's fair, IMO.
Same deal is offered to everyone, but some can take advantage of it, and some can't due to their own volumes.
Now, you could argue that collective ordering like that is unfair for the local reseller... but if CompUSA/BestBuy/whoever can get the same deal as the Apple Stores, then again, that's fair. A chain orders as a unit, not as discrete stores, generally. That's how the volume game works.
Then again Fred Anderson is leaving pretty soon, maybe to escape a sinking ship and glide down to another country in a golden parachute?8)
Originally posted by Kickaha
Now, you could argue that collective ordering like that is unfair for the local reseller... but if CompUSA/BestBuy/whoever can get the same deal as the Apple Stores, then again, that's fair. A chain orders as a unit, not as discrete stores, generally. That's how the volume game works.
I actually belive Apple has it set up with even the large retailers to have the shipments tied to individual stores or regions so the volume will not come close to the Apple stores. And apple retail gets significantly higher amounts of product than most of the retailers.
"However, Santos said that resellers like CompUSA pay the same price, and even distributors like Ingram and TechData see the same price tag but receive a back-end rebate. While distributor sources could not be reached for confirmation, one source familiar with Apple's distribution channels said that the back-end rebates for distributors and big dealers amount to a 3% to 5% discount, much smaller than the price cuts quoted on the retail stores' invoices." (link)
Originally posted by jade
I actually belive Apple has it set up with even the large retailers to have the shipments tied to individual stores or regions so the volume will not come close to the Apple stores.
Interesting speculation - have any proof of that, one way or the other?
And apple retail gets significantly higher amounts of product than most of the retailers.
Whiiiiiiiiich would be higher volume = lower prices.
If the playing field is the same for everyone, with the same volume discounts *offered* to everyone, but only some folks can *use* them... that's called fair. Ethics isn't about equal, it's about fair. (Why do so many people gloss past that?)