"Apple is forced to use what is called the subscription method of accounting for sales of the iPhone"
Except that Apple chose to account for iPhone sales in this manner. Nobody forced them to do it. They still account for Mac and software sales in the normal manner, as they are sold. Most likely they decided to do this to smooth out the quarterly numbers. If they new that they'd have a huge boost in the summers of 2007 and 2008 because of iPhone sales, doing the accounting this way makes the quarter-to-quarter earnings look less volitile. Otherwise, we'd hear the analsysts scream "the sky is falling!" in the Fall quarter because of the huge drop in earnings. Then they'd scream again in the following quarter because of the seasonal drop after holiday sales.
I agree with the basic premise of the article the many analysts just don't get Apple. But I think there are pros and cons of each accounting method and I'm sure Apple did it's homework when they decided to account for iPhone sales in this manner.
As a bull, you should be glad that the bears currently have it.
Oh I am, and have taken advantage of it.
Quote:
Originally Posted by cameronj
How many people here were complaining that the market "didn't understand Apple" when it was at $200? Nobody. People are just bitter that Apple has fallen just as much as everyone else has in this ugly market.
Just because it was @$200 did not mean the market understood Apple.Just as it is now, it was clueless people following whatever the clueless analysts told them like the sheep they all are.
"Apple is forced to use what is called the subscription method of accounting for sales of the iPhone"
Except that Apple chose to account for iPhone sales in this manner. Nobody forced them to do it. They still account for Mac and software sales in the normal manner, as they are sold. Most likely they decided to do this to smooth out the quarterly numbers. If they new that they'd have a huge boost in the summers of 2007 and 2008 because of iPhone sales, doing the accounting this way makes the quarter-to-quarter earnings look less volitile. Otherwise, we'd hear the analsysts scream "the sky is falling!" in the Fall quarter because of the huge drop in earnings. Then they'd scream again in the following quarter because of the seasonal drop after holiday sales.
I agree with the basic premise of the article the many analysts just don't get Apple. But I think there are pros and cons of each accounting method and I'm sure Apple did it's homework when they decided to account for iPhone sales in this manner.
Yes, I thought the reason Apple went for this strange accounting method was to somehow disguise how well the iPhone was doing, and also disguise how much money they made from each phone
- when they first launched the iphone, they were very careful not to divulge how much of a kick-back they were getting from AT & T
- perhaps they're not worried about it any more, since the iphone is available subscription-free in several countries.
Also, as you say, they may have been worried about the potential volatility of sales for this new (for them) market.
Obviously now they're more concerned with their falling share price, and was to gee-up the market with some good news..
Anyway, whichever way you slice it, the iphone's doing phenominally well.
Just because it was @$200 did not mean the market understood Apple.Just as it is now, it was clueless people following whatever the clueless analysts told them like the sheep they all are.
The blind leading the blind. lol
You are so right on that one, but still there is a bunch of people (analyst) that insist to fit Apple business to others like MS, they don't understand the way Apple works, develop, manage their products. Its like they can't see another model to do business.
Low valuation, lots of cash in the bank, etc. Historically this configuration has been a huge risk of a hostile takeover. That would be good for stockholders, but bad for Apple customers.
I love how I just looked at APPL on Yahoo! Finance...
The second or third story from the top is titled "Trade with Cramer: Don't buy Apple" Nowhere in the video does the woman say that people shouldn't buy Apple.
About two or three story lines down from that it reads "Cramer: Apple's Juicier than RIM" - In this video Cramer says that Apple is really an amazing company that can't be compared to other companies like RIM for predicting their earnings.
It's amazing at how stupid these headlines are.
One headline says don't buy - but in the story they say APPL is great
I lost the link, but there is a website that tracks these analysts and gives their success rating. Cramer is 48% right, worse than a flip of a coin.
The people on TV that seem to know what they are talking about are Eric Bolling from Fox Business, and Karen Finerman from CNBC (except that Karen is a microsoft fan).
As said above I think it right that Apple wanted to reduce volatility of results stemming from iPhone.
But I also think that they wanted to downplay the success of the numbers in the belief that there can be too much of a good thing. As it's turned out, the market has treated APPL just as any other stock out there and hence the need to accentuate the true numbers.
Either way, my humble belief is that a reasonable P/E for APPL is circa 25, not the current 8 to 15 depending on whose calculations you use.
Low valuation, lots of cash in the bank, etc. Historically this configuration has been a huge risk of a hostile takeover. That would be good for stockholders, but bad for Apple customers.
Well, leveraged buy-out activity has completely ceased with the credit lock-up, so I don't think that is much of a risk. Given that once credit markets free up consumer spending should also jump, I'd say LBO of Apple would be nearly impossible.
While showing income from iphones over the two year period understates the current period, at some point in the future the reverse will also be true. When the growth curve levels off there will be periods when income is overstated because prior periods will be included.
I love how I just looked at APPL on Yahoo! Finance...
The second or third story from the top is titled "Trade with Cramer: Don't buy Apple" Nowhere in the video does the woman say that people shouldn't buy Apple.
About two or three story lines down from that it reads "Cramer: Apple's Juicier than RIM" - In this video Cramer says that Apple is really an amazing company that can't be compared to other companies like RIM for predicting their earnings.
It's amazing at how stupid these headlines are.
One headline says don't buy - but in the story they say APPL is great
another headline says how great Apple is -
Hands-down, it looks to be a great time to buy AAPL. Cramer is big AAPL fan, although he sits in the closet some times. (His current investment strategy is much more focused on dividend-yielding safe-harbor companies though.)
Of course, the worst-case scenario is that Apple starts trading down to its cash position plus one year earnings
The nice benefit of the subscription based accounting is that any recession we see will be balanced nicely by steady or growing subscription revenues for at least another year. That will help make the stock more predictable and easier for armchair investors to value and therefore invest in.
I still find it somewhat amusing that the more money Apple makes, the less value the stock has. Maybe I should say less than amusing since I'm still waiting for Apple to be actually worth $200 a share in real world value and not just in some analyst's mind.
The nice benefit of the subscription based accounting is that any recession we see will be balanced nicely by steady or growing subscription revenues for at least another year.
I agree, it irons out the blips, and less for the spin doctors seize hold of.
... I dont see RIMM surviving long (unless heaven forbid MSFT buys the company, which IMO would be a great move for microsoft and would certainly prolong its demise) ...
Spot on.
Anyone who owns RIMM stock would be wise to dump it if they haven't already. Every single one of their products and their supposed unique advantages is being replicated by other suppliers.
With all the talk around companies coming out with "iPhone killers" (imitators really), people are failing to notice that these same companies are all coming out with "Blackbery Killers" as well.
Flip-phones and sliders are a thing of the past, the market is solidifying around two form facotrs. The Blackberry-esque form with half keys and half screen, and the iPhone form with all screen. All smart-phones are also moving towards always on functionality and exchange or exchange-like email.
Blackberry is trying to stay in the game with an iPhone imitator, but if every company is going to have phones in these two forms, there is really no reason to pick Blackberry over any other. They are already history, they just don't know it yet.
I still find it somewhat amusing that the more money Apple makes, the less value the stock has. Maybe I should say less than amusing since I'm still waiting for Apple to be actually worth $200 a share in real world value and not just in some analyst's mind.
as far as I can tell the ENTIRE reason for that (besides the economy in general) is that most analysts are perpetually expecting Apple's "next" quarter to be crap. Apple always blows them away - but then they find some reason for Apple's next quarter to be crap - so the stock goes down.
Oh! You beat EPS by a dime? That's great for last quarter, but.... this quarter RIM looks is going doing bad, so we're selling.
Oh! You beat estimates of iPod sales by half a million? That's great, but we think the market is over-saturated with those things, so there won't be any sales growth for the next year, so we're downgrading you.
I'm guessing that the shortfall on Mac sales for Q4 was because of people like me. My personal notebook died about 3 months ago and I had my desktop to keep me tied over until the new MacBooks came out. I was expecting them to come out in September, so I waited and waited. I was expecting something special, new and priced below $1000. It didn't happen exactly the way I wanted, but I'm very very happy with my new MacBook.
I went to the mall the other day and spent 30 mins on a monday at 5pm watching my local Apple retail store.
1) it was the fullest store in the mall (minus Nordstroms, Macey's, etc)
2) In 30 minutes I saw 4 people walk out with new MacBooks/Pro's
3) Nearly half the 40 or so people that I counted walking in/out of the store had purchased something
4) Several people were in the process of purchasing an iPhone
5) EVERYONE who walked by the store (150 people maybe?) looked at the store. This is important to me because people were only casually walking by all the other stores without looking, but people were noticing (wishing for something that Apple sells?) Apple.
There's nothing nothing wrong with the GAAP standard - just questions regarding how it's being applied to Apple versus AT&T. AT&T is subject first-hand to any interruption on its monthly income stream over the life of a two-year contract. The question to ask is whether the subsidized revenue that Apple is presently receiving from 3G sales is subject to contingent risk.
What's the catch? The only way that 3Gs can come to market at $199 and $299 is through a significant cash subsidy paid to Apple by AT&T for being the exclusive service provider in the U.S. Similar deals must apply to arrangements between Apple and other wireless carriers in other countries. Does Apple receive these subsidies monthly from the carriers over the life of the service contract, or does it receive a lump sum?
So - what happens if the recession gets really bad and hundreds of thousands of subscribers bail out on their service? Do monthly subsidies from the phone companies stop, or is Apple required to refund any portion of a lump-sum subsidy that the carrier already paid? That's the risk that GAAP is intended to recognize and expose to investors. It's a risk that both Apple and AT&T shareholders need to know about. It matters a lot to me because I own shares in both.
GAAP is there for a good reason. In hindsight, if we'd had better GAAP guidance in place for credit default swaps, perhaps a few years back we would have recognized the awful risk of excessive sub-prime lending and have forestalled the present global credit freeze and collapse in financial confidence.
Does Apple receive these subsidies monthly from the carriers over the life of the service contract, or does it receive a lump sum?
Based on cash flow being so much larger than earnings(and larger than non-GAAP earnings also) , I would say lump sum. They have $5.6 billion in deferred revenue on their cash flow statement, and I think that it has to show up in their bank account before they can put it on the cash flow statement.
Comments
Except that Apple chose to account for iPhone sales in this manner. Nobody forced them to do it. They still account for Mac and software sales in the normal manner, as they are sold. Most likely they decided to do this to smooth out the quarterly numbers. If they new that they'd have a huge boost in the summers of 2007 and 2008 because of iPhone sales, doing the accounting this way makes the quarter-to-quarter earnings look less volitile. Otherwise, we'd hear the analsysts scream "the sky is falling!" in the Fall quarter because of the huge drop in earnings. Then they'd scream again in the following quarter because of the seasonal drop after holiday sales.
I agree with the basic premise of the article the many analysts just don't get Apple. But I think there are pros and cons of each accounting method and I'm sure Apple did it's homework when they decided to account for iPhone sales in this manner.
As a bull, you should be glad that the bears currently have it.
Oh I am, and have taken advantage of it.
How many people here were complaining that the market "didn't understand Apple" when it was at $200? Nobody. People are just bitter that Apple has fallen just as much as everyone else has in this ugly market.
Just because it was @$200 did not mean the market understood Apple.Just as it is now, it was clueless people following whatever the clueless analysts told them like the sheep they all are.
The blind leading the blind. lol
"Apple is forced to use what is called the subscription method of accounting for sales of the iPhone"
Except that Apple chose to account for iPhone sales in this manner. Nobody forced them to do it. They still account for Mac and software sales in the normal manner, as they are sold. Most likely they decided to do this to smooth out the quarterly numbers. If they new that they'd have a huge boost in the summers of 2007 and 2008 because of iPhone sales, doing the accounting this way makes the quarter-to-quarter earnings look less volitile. Otherwise, we'd hear the analsysts scream "the sky is falling!" in the Fall quarter because of the huge drop in earnings. Then they'd scream again in the following quarter because of the seasonal drop after holiday sales.
I agree with the basic premise of the article the many analysts just don't get Apple. But I think there are pros and cons of each accounting method and I'm sure Apple did it's homework when they decided to account for iPhone sales in this manner.
Yes, I thought the reason Apple went for this strange accounting method was to somehow disguise how well the iPhone was doing, and also disguise how much money they made from each phone
- when they first launched the iphone, they were very careful not to divulge how much of a kick-back they were getting from AT & T
- perhaps they're not worried about it any more, since the iphone is available subscription-free in several countries.
Also, as you say, they may have been worried about the potential volatility of sales for this new (for them) market.
Obviously now they're more concerned with their falling share price, and was to gee-up the market with some good news..
Anyway, whichever way you slice it, the iphone's doing phenominally well.
Oh I am, and have taken advantage of it.
Just because it was @$200 did not mean the market understood Apple.Just as it is now, it was clueless people following whatever the clueless analysts told them like the sheep they all are.
The blind leading the blind. lol
You are so right on that one, but still there is a bunch of people (analyst) that insist to fit Apple business to others like MS, they don't understand the way Apple works, develop, manage their products. Its like they can't see another model to do business.
Dam funny
The second or third story from the top is titled "Trade with Cramer: Don't buy Apple" Nowhere in the video does the woman say that people shouldn't buy Apple.
About two or three story lines down from that it reads "Cramer: Apple's Juicier than RIM" - In this video Cramer says that Apple is really an amazing company that can't be compared to other companies like RIM for predicting their earnings.
It's amazing at how stupid these headlines are.
One headline says don't buy - but in the story they say APPL is great
another headline says how great Apple is -
The people on TV that seem to know what they are talking about are Eric Bolling from Fox Business, and Karen Finerman from CNBC (except that Karen is a microsoft fan).
But I also think that they wanted to downplay the success of the numbers in the belief that there can be too much of a good thing. As it's turned out, the market has treated APPL just as any other stock out there and hence the need to accentuate the true numbers.
Either way, my humble belief is that a reasonable P/E for APPL is circa 25, not the current 8 to 15 depending on whose calculations you use.
Low valuation, lots of cash in the bank, etc. Historically this configuration has been a huge risk of a hostile takeover. That would be good for stockholders, but bad for Apple customers.
Well, leveraged buy-out activity has completely ceased with the credit lock-up, so I don't think that is much of a risk. Given that once credit markets free up consumer spending should also jump, I'd say LBO of Apple would be nearly impossible.
I love how I just looked at APPL on Yahoo! Finance...
The second or third story from the top is titled "Trade with Cramer: Don't buy Apple" Nowhere in the video does the woman say that people shouldn't buy Apple.
About two or three story lines down from that it reads "Cramer: Apple's Juicier than RIM" - In this video Cramer says that Apple is really an amazing company that can't be compared to other companies like RIM for predicting their earnings.
It's amazing at how stupid these headlines are.
One headline says don't buy - but in the story they say APPL is great
another headline says how great Apple is -
Hands-down, it looks to be a great time to buy AAPL. Cramer is big AAPL fan, although he sits in the closet some times. (His current investment strategy is much more focused on dividend-yielding safe-harbor companies though.)
Of course, the worst-case scenario is that Apple starts trading down to its cash position plus one year earnings
The nice benefit of the subscription based accounting is that any recession we see will be balanced nicely by steady or growing subscription revenues for at least another year. That will help make the stock more predictable and easier for armchair investors to value and therefore invest in.
The nice benefit of the subscription based accounting is that any recession we see will be balanced nicely by steady or growing subscription revenues for at least another year.
I agree, it irons out the blips, and less for the spin doctors seize hold of.
... I dont see RIMM surviving long (unless heaven forbid MSFT buys the company, which IMO would be a great move for microsoft and would certainly prolong its demise) ...
Spot on.
Anyone who owns RIMM stock would be wise to dump it if they haven't already. Every single one of their products and their supposed unique advantages is being replicated by other suppliers.
With all the talk around companies coming out with "iPhone killers" (imitators really), people are failing to notice that these same companies are all coming out with "Blackbery Killers" as well.
Flip-phones and sliders are a thing of the past, the market is solidifying around two form facotrs. The Blackberry-esque form with half keys and half screen, and the iPhone form with all screen. All smart-phones are also moving towards always on functionality and exchange or exchange-like email.
Blackberry is trying to stay in the game with an iPhone imitator, but if every company is going to have phones in these two forms, there is really no reason to pick Blackberry over any other. They are already history, they just don't know it yet.
I still find it somewhat amusing that the more money Apple makes, the less value the stock has.
as far as I can tell the ENTIRE reason for that (besides the economy in general) is that most analysts are perpetually expecting Apple's "next" quarter to be crap. Apple always blows them away - but then they find some reason for Apple's next quarter to be crap - so the stock goes down.
Oh! You beat EPS by a dime? That's great for last quarter, but.... this quarter RIM looks is going doing bad, so we're selling.
Oh! You beat estimates of iPod sales by half a million? That's great, but we think the market is over-saturated with those things, so there won't be any sales growth for the next year, so we're downgrading you.
I'm guessing that the shortfall on Mac sales for Q4 was because of people like me. My personal notebook died about 3 months ago and I had my desktop to keep me tied over until the new MacBooks came out. I was expecting them to come out in September, so I waited and waited. I was expecting something special, new and priced below $1000. It didn't happen exactly the way I wanted, but I'm very very happy with my new MacBook.
I went to the mall the other day and spent 30 mins on a monday at 5pm watching my local Apple retail store.
1) it was the fullest store in the mall (minus Nordstroms, Macey's, etc)
2) In 30 minutes I saw 4 people walk out with new MacBooks/Pro's
3) Nearly half the 40 or so people that I counted walking in/out of the store had purchased something
4) Several people were in the process of purchasing an iPhone
5) EVERYONE who walked by the store (150 people maybe?) looked at the store. This is important to me because people were only casually walking by all the other stores without looking, but people were noticing (wishing for something that Apple sells?) Apple.
Anyway...
What's the catch? The only way that 3Gs can come to market at $199 and $299 is through a significant cash subsidy paid to Apple by AT&T for being the exclusive service provider in the U.S. Similar deals must apply to arrangements between Apple and other wireless carriers in other countries. Does Apple receive these subsidies monthly from the carriers over the life of the service contract, or does it receive a lump sum?
So - what happens if the recession gets really bad and hundreds of thousands of subscribers bail out on their service? Do monthly subsidies from the phone companies stop, or is Apple required to refund any portion of a lump-sum subsidy that the carrier already paid? That's the risk that GAAP is intended to recognize and expose to investors. It's a risk that both Apple and AT&T shareholders need to know about. It matters a lot to me because I own shares in both.
GAAP is there for a good reason. In hindsight, if we'd had better GAAP guidance in place for credit default swaps, perhaps a few years back we would have recognized the awful risk of excessive sub-prime lending and have forestalled the present global credit freeze and collapse in financial confidence.
Does Apple receive these subsidies monthly from the carriers over the life of the service contract, or does it receive a lump sum?
Based on cash flow being so much larger than earnings(and larger than non-GAAP earnings also) , I would say lump sum. They have $5.6 billion in deferred revenue on their cash flow statement, and I think that it has to show up in their bank account before they can put it on the cash flow statement.
http://yahoo.brand.edgar-online.com/...3125-08-213642