Firm urges investors to buy Apple after panic on Mac sales
After Apple shares plunged by nearly 4% on Thursday, due to shareholder panic in reaction to NPD's January US retail results, an analyst brief has urged investors "to exploit what we believe is the market's overreaction and buy the stock."
NPD data for January was actually released on Tuesday, but wasn't widely reported until Thursday. The firm's numbers, based on US retail store surveys, indicated a 6% drop in quarterly Mac sales year over year and a 14% drop in iPod sales. The reason for the two day delay in the panic on Apple's stock price relates to several dramatically framed reports filed on Thursday.
The stories all reported Apple's drop in growth in comparison with the company's performance in 2007, as opposed to highlighting Apple's actual performance relative to other companies in the same economic climate. Additionally, many of the articles focused on percentages of growth rather than actual sales numbers or revenue, contrasting proportional changes in growth while ignoring that Apple's unit sales are actually higher now than they were in 2007 when the company was achieving huge percentages of growth.
Analysts Charlie Wolf and Jim Lewellis of Needham & Company filed the brief that called the selloff an "overreaction," noting that NPD's figures only reflect a single month of sales, only look at retail sales, and only reflect US sales; international sales make up 45% of Apple's worldwide figures.
Additionally, the brief noted that Apple actually guided for a 12% decline in sales revenues for the first calendar quarter of 2009 (the company's fiscal second quarter). This is because Apple's guidance of $7.6 to $8 billion in revenue (compared to $7.5 billion in the year ago quarter) also includes $1.5 billion of iPhone revenue deferred on a subscription basis.
In other words, while Apple expects to report greater revenues this quarter over the year ago quarter, it has also figured in money it has already earned but has not yet recognized, due to Sarbanes-Oxley Act accounting rules. Because Apple's guidance accounted for a 12% decline in earnings apart from the subscription accounting revenues already in the bank, the 6% drop in Mac sales is "at worst a non-event" Needham stated in the brief.
Needham estimates Apple will actually report $7.9 billion for the quarter, a 5% increase over the year ago quarter's revenues, and ranks the company a "strong buy."
Mind the GAAP
Many investors have failed to recognize the billions in revenues Apple has earned and collected on iPhone sales, but will only officially recognize in its earnings statements in one-eighth increments each quarter over the two year term of the phones' subscription accounting. To put things into perspective, Apple began releasing "non-GAAP" figures in addition its standard GAAP accounting to make these 'earned but not yet recognized' revenues more transparent.
Even though many observers expect the economy to continue to slump throughout 2009, Apple will continue to report its billions in deferred revenue from iPhones already sold, including the blockbuster fiscal Q3 launch of the iPhone 3G.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other. Until then, Apple is sitting on a huge recession-insurance policy, which is paying out regular dividends that will blunt the retail pain the company is now suffering through. That will continue to keep Apple's results buoyed above the tanking sales of most other retailers and PC makers.
NPD data for January was actually released on Tuesday, but wasn't widely reported until Thursday. The firm's numbers, based on US retail store surveys, indicated a 6% drop in quarterly Mac sales year over year and a 14% drop in iPod sales. The reason for the two day delay in the panic on Apple's stock price relates to several dramatically framed reports filed on Thursday.
The stories all reported Apple's drop in growth in comparison with the company's performance in 2007, as opposed to highlighting Apple's actual performance relative to other companies in the same economic climate. Additionally, many of the articles focused on percentages of growth rather than actual sales numbers or revenue, contrasting proportional changes in growth while ignoring that Apple's unit sales are actually higher now than they were in 2007 when the company was achieving huge percentages of growth.
Analysts Charlie Wolf and Jim Lewellis of Needham & Company filed the brief that called the selloff an "overreaction," noting that NPD's figures only reflect a single month of sales, only look at retail sales, and only reflect US sales; international sales make up 45% of Apple's worldwide figures.
Additionally, the brief noted that Apple actually guided for a 12% decline in sales revenues for the first calendar quarter of 2009 (the company's fiscal second quarter). This is because Apple's guidance of $7.6 to $8 billion in revenue (compared to $7.5 billion in the year ago quarter) also includes $1.5 billion of iPhone revenue deferred on a subscription basis.
In other words, while Apple expects to report greater revenues this quarter over the year ago quarter, it has also figured in money it has already earned but has not yet recognized, due to Sarbanes-Oxley Act accounting rules. Because Apple's guidance accounted for a 12% decline in earnings apart from the subscription accounting revenues already in the bank, the 6% drop in Mac sales is "at worst a non-event" Needham stated in the brief.
Needham estimates Apple will actually report $7.9 billion for the quarter, a 5% increase over the year ago quarter's revenues, and ranks the company a "strong buy."
Mind the GAAP
Many investors have failed to recognize the billions in revenues Apple has earned and collected on iPhone sales, but will only officially recognize in its earnings statements in one-eighth increments each quarter over the two year term of the phones' subscription accounting. To put things into perspective, Apple began releasing "non-GAAP" figures in addition its standard GAAP accounting to make these 'earned but not yet recognized' revenues more transparent.
Even though many observers expect the economy to continue to slump throughout 2009, Apple will continue to report its billions in deferred revenue from iPhones already sold, including the blockbuster fiscal Q3 launch of the iPhone 3G.
After two full years of iPhone sales, the company's GAAP and non-GAAP numbers will begin to approach each other. Until then, Apple is sitting on a huge recession-insurance policy, which is paying out regular dividends that will blunt the retail pain the company is now suffering through. That will continue to keep Apple's results buoyed above the tanking sales of most other retailers and PC makers.
Comments
Don't we hear these reports about Mac sales suffering almost daily?
Do we? And if we do - place those reports in perspective. Compare to competition and give the result a few moments of thought before judging what's going on. So far it seems AAPL has been relatively resistant to the plunge in the economy. Conclusion: they do a better job than the competition (debateable if it is technical or marketing or both but none the less) and if you have a huge bucket of $ to spend - spend it on AAPL!
Mind the GAAP
Many investors have failed to recognize the billions in revenues Apple has earned and collected on iPhone sales, but will only officially recognize in its earnings statements in one-eighth increments each quarter over the two year term of the phones' subscription accounting. To put things into perspective, Apple began releasing "non-GAAP" figures in addition its standard GAAP accounting to make these 'earned but not yet recognized' revenues more transparent.
url=http://www.appleinsider.com/article.php?id=10890][ View this article at AppleInsider.com ][/url][/c]
Bridge the GAAP
Can someone explain why you could "straightline" the sale of the iPhone over the term of it's AT&T contract on Apple's books for GAAP purposes? Isn't a sale - a sale? I understand this concept with rent/lease accouting but this one baffles me. What GAAP is this? Thanks.
Update the Mac mini and I'll buy one. It's been 563 days since the last update.
Does it surprise anyone that their desktop sales are lagging? They're trying to sell more than a year old components (nearly two in the Mac mini) at the same prices they were selling a year ago.
There are two very simple ways for Apple to help it's bottom line. One, drop the price slightly on their current desktop machines - the prices for components must have significantly dropped. Two, update the computers to modern components and keep the prices the same.
Update the MacPro and I'll buy one. It's been 409 days since the last update.
Update the Mac mini and I'll buy one. It's been 563 days since the last update.
Does it surprise anyone that their desktop sales are lagging? They're trying to sell more than a year old components (nearly two in the Mac mini) at the same prices they were selling a year ago.
There are two very simple ways for Apple to help it's bottom line. One, drop the price slightly on their current desktop machines - the prices for components must have significantly dropped. Two, update the computers to modern components and keep the prices the same.
couldn't agree more
Update the MacPro and I'll buy one. It's been 409 days since the last update.
Update the Mac mini and I'll buy one. It's been 563 days since the last update.
Does it surprise anyone that their desktop sales are lagging? They're trying to sell more than a year old components (nearly two in the Mac mini) at the same prices they were selling a year ago.
There are two very simple ways for Apple to help it's bottom line. One, drop the price slightly on their current desktop machines - the prices for components must have significantly dropped. Two, update the computers to modern components and keep the prices the same.
Agreed. And may I add: update the iMac and I'll buy. It's been almost 5 years since that form factor has been in place. Even Jay Leno got replaced by Conan O'Brien.
Does it surprise anyone that their desktop sales are lagging? They're trying to sell more than a year old components (nearly two in the Mac mini) at the same prices they were selling a year ago.
even the components in new apple hardware (with the exception of a few) are already outdated on relesae day.
Release new products already- iMacs, Mac minis, new iPhones, 7" MacTouch -anything please.
Did you run out of things to complain about?
Did you run out of things to complain about?
My wish is your complaint?
Actually it's more like a fine whine.
There are two very simple ways for Apple to help it's bottom line. One, drop the price slightly on their current desktop machines - the prices for components must have significantly dropped. Two, update the computers to modern components and keep the prices the same.
The Problem is the components are not as cheep now as they were.. Due to all the $ vs Yen vs £ and other major problems the cost price of many of these products has gone up...
Pioneer have stopped making TVs and are putting prices up
Sony are putting prices up
Denon are putting prices up
MSI are putting prices up
Acer are putting prices up
what makes you think that Apple will be able to soak up this raw price increase....
If they cant make between 30 and 50% markup on a system by the time it gets to the dealer on the street its not worth doing..
and before you all jump up and down about margins on there kit.. any sensible business man will tell you that paying the wages and costs of running a company the size of apple requires a decent margin....
Bridge the GAAP
Can someone explain why you could "straightline" the sale of the iPhone over the term of it's AT&T contract on Apple's books for GAAP purposes? Isn't a sale - a sale? I understand this concept with rent/lease accouting but this one baffles me. What GAAP is this? Thanks.
GAAP accounting is NOT related to the AT&T contacts in anyway. It is NOT cash being given to Apple by AT&T for phone subscriptions.
GAAP accounting simply means that Apple are only recognising the sale of the actual iPhone itself over a 24 month period. Every month they take 1/24 of the sale value of the iPhone as revenue in to thier accounts. This accounting method lets Apple update the iPhone on a regular basis for free without falling foul of the Sabaine Oxley rules. Apple also apply the same GAAP accounting to the AppleTV, hence it gets free updates. They do not apply GAAP accounting to the iPod Touch, all revenue for those is taken a tiem of sale, hence you have to pay for updates.
Basically it works like this. If Apple have taken the revenue for a device then the device has not been fully paid for in accounting terms. Therefore they can offer additional features as upgrades without being sued by share holders who could insist the updates are paid for. The reason being the delayed revenue means the updates are paid for over the first 24 months of the device being owned.
The Problem is the components are not as cheep now as they were.. Due to all the $ vs Yen vs £ and other major problems the cost price of many of these products has gone up...
Pioneer have stopped making TVs and are putting prices up
Sony are putting prices up
Denon are putting prices up
MSI are putting prices up
Acer are putting prices up
what makes you think that Apple will be able to soak up this raw price increase....
If they cant make between 30 and 50% markup on a system by the time it gets to the dealer on the street its not worth doing..
and before you all jump up and down about margins on there kit.. any sensible business man will tell you that paying the wages and costs of running a company the size of apple requires a decent margin....
My hope is because Apple have been so successful thus far they can hold prices while the PC world die a slow death over low sales, low margins and raw material increases.
Many investors have failed to recognize the billions in revenues Apple has earned and collected on iPhone sales
This is why I love AppleInsider. They're doing the entire investment community the "favor" of alerting them to concept of deferred revenue. Many investors fail to recognize this deferred revenue? Really? I doubt it. The stock price is moved up or down based on HUGE investors, like hedge funds and other large institutional investors - not Joe Stockholder. These big guys are well aware of deferred revenue and it has nothing to do with why the stock drops 4% on any given day.
Do we? And if we do - place those reports in perspective. Compare to competition and give the result a few moments of thought before judging what's going on. So far it seems AAPL has been relatively resistant to the plunge in the economy. Conclusion: they do a better job than the competition (debateable if it is technical or marketing or both but none the less) and if you have a huge bucket of $ to spend - spend it on AAPL!
Yes we do, we have been hearing these reports of Mac sales declining for well over a year now but Apple still keeps beating the numbers, when will we start to see all these declines?
even the components in new apple hardware (with the exception of a few) are already outdated on relesae day.
What products are we talking about? The new MacBook line uses DDR3, Core 2 Duo, and top of the line integrated graphics from the best graphics company out there. They are using LED backlighting and are the first mainstream laptops to adopt DisplayPort. Even the MacBook Air, when compared to other computers it is competing against, is top of the line by comparison. And the white MacBook, while lagging behind the others, is still ahead of the curve on 90% of the other laptops out there when you look at similar options from HP, Dell, Toshiba, Acer, etc. Apple doesn't bother itself with low-end, junk computers using old Celeron processors (original release 1998) or low-powered netbooks that were outdated 5 years before they hit the market. Yes, their desktop line is in desperate need of an upgrade, but it's obvious their focus has shifted to notebooks, where the profits truly are. I will not disagree that their desktops are sorely out of date, but on release day their new computers are usually a couple steps ahead of the curve.
This is why I love AppleInsider. They're doing the entire investment community the "favor" of alerting them to concept of deferred revenue. Many investors fail to recognize this deferred revenue? Really? I doubt it. The stock price is moved up or down based on HUGE investors, like hedge funds and other large institutional investors - not Joe Stockholder. These big guys are well aware of deferred revenue and it has nothing to do with why the stock drops 4% on any given day.
Isn't the reason we have bubbles these days because the little guys are so numerous that they do have an enormous impact on stocks so 'gold rush' and 'sky is falling' events happen despite the more educated and large investors?
GAAP accounting is NOT related to the AT&T contacts in anyway. It is NOT cash being given to Apple by AT&T for phone subscriptions.
GAAP accounting simply means that Apple are only recognising the sale of the actual iPhone itself over a 24 month period. Every month they take 1/24 of the sale value of the iPhone as revenue in to thier accounts. This accounting method lets Apple update the iPhone on a regular basis for free without falling foul of the Sabaine Oxley rules. Apple also apply the same GAAP accounting to the AppleTV, hence it gets free updates. They do not apply GAAP accounting to the iPod Touch, all revenue for those is taken a tiem of sale, hence you have to pay for updates.
Basically it works like this. If Apple have taken the revenue for a device then the device has not been fully paid for in accounting terms. Therefore they can offer additional features as upgrades without being sued by share holders who could insist the updates are paid for. The reason being the delayed revenue means the updates are paid for over the first 24 months of the device being owned.
Got it- thanks a lot. It's all about the free updates. Is it then just coincidence that they used 2 years - same as the AT&T contract? Can you use as many as you like- as long as you provide free updates in that period you decide upon?