Apple now sitting on $10B in deferred revenue, more than Samsung or Google earned last quarter

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Comments

  • Reply 21 of 80
    maestro64maestro64 Posts: 5,036member
    Quote:
    Originally Posted by lukefrench View Post

     



    They are just following GAAP rules which are mandatory. At one point they reported both GAAP and non-GAAP results when iphone revenues became too big.

     

    The problem is that those rules are there for a good reason, without them ENRON creative accounting practices were such that they bore no relation to reality.

     

    GAAP rules make sure it cant be the case, but in the specific case of Apple underestimate results by a big margin because the deferred portion of the revenues grow very fast.

    In the more general case, the revenues newly acknowledged from 2 years ago cancel the deferred portion now, and the results are roughly the same. There is some taxes implications too, but those are favorable to Apple (the deferred portion is taxed only when recognised).

     

    the big difference with Google, Microsoft & HP is that Apple make both hardware and software and dont/cant separate the lines of revenues. This rule seems to work for hardware only or software only but is a bit ridiculous here


    I agree ENRON screwed it all up, since they were accounting for future earning on contracts to provide future services in the current quarter when the contract was signed. However, people who know this stuff very well said that apple did not need to do this. They taking a very conservative view of the what is a finish product. They are saying since they know they plan to add new features in the future to enable things which the hardware can do today they consider it a future review due to the fact they provide free updated.  

     

    Start hardware could have this limitation as well, I seen and used product which had way more functionality then was original bough but via a free firmware update or an new hardware module it increase the capabilities off the original hardware but the supplier did not defer any of the incoming. Both accounting methods are acceptable you just have to be consistent and clear in your definition.

  • Reply 22 of 80
    asdasdasdasd Posts: 5,686member
    lukefrench wrote: »

    They are just following GAAP rules which are mandatory. At one point they reported both GAAP and non-GAAP results when iphone revenues became too big.

    The problem is that those rules are there for a good reason, without them ENRON creative accounting practices were such that they bore no relation to reality.

    GAAP rules make sure it cant be the case, but in the specific case of Apple underestimate results by a big margin because the deferred portion of the revenues grow very fast.
    In the more general case, the revenues newly acknowledged from 2 years ago cancel the deferred portion now, and the results are roughly the same. There is some taxes implications too, but those are favorable to Apple (the deferred portion is taxed only when recognised).

    the big difference with Google, Microsoft & HP is that Apple make both hardware and software and dont/cant separate the lines of revenues. This rule seems to work for hardware only or software only but is a bit ridiculous here

    Ah good point. So we are seeing some deferred revenue from 1-2 years ago now. Which means net not-yet-declared revenue isn't anything like 10B. ( which isn't one quarter either as DED seems to suggest).

    More info below the line than above as is common enough these days.
  • Reply 23 of 80
    mvigodmvigod Posts: 172member

    Apple does a poor job of marketing itself and its financials. It is its own worst enemy.  Icahn is actually trying to help apple with this and if the street is willing to offer shares so low he rightfully feels apple should be buying them hand over fist.

     

    Borrow money at 3%.  After tax write off on interest effective rate at 2% or less.  Apple has a 15% plus earnings yield.  What part of no brainer does the apple board not understand?  When you can buy dollars for dimes you do it all day long because it won't last forever.  This is a once in a lifetime opportunity for Apple to take back 1/3 to 1/2 the company shares at a too low to believe price.

     

    The only rationale for NOT doing this is if the board is very uncertain and nervous about apple's near term future.

  • Reply 24 of 80
    genovellegenovelle Posts: 1,392member
    sog35 wrote: »
    So basically if Apple didn't change their accounting method they would have $10B more in profits the last year........

    I really don't see why they need to defer revenue for hardware for 2 years.  This a really conservative method.
    They explained the reason when they released the iPhone. If they didn't do this they would have to charge for updates like they had to with the iPod touch at first because of changes to the accounting regulations.
  • Reply 25 of 80
    I'm going on a limb to say that Apple is creating a new method of handling its finances. I'm going to say this is the side dish to the Double Irish with a Dutch sandwich that they invented. I think there's far more to this than meets the eye. It'll probably be awhile till other companies catch on to what they are REALLY doing. Free software is just a nice side effect for the customer facing side.
  • Reply 26 of 80
    Quote:

    Originally Posted by Maestro64 View Post

     

    To make it very simple for people Apple already has this money in the bank account and collecting interest on this before they have to declare it as revenue for reporting purposes. The only thing I am not sure is whether Apple can defer the taxes on this as someone suggest. My educated guess tells me no, they are already accounting this for tax purposes.


     

    Doesn't this affect the "deferred tax" portion of the balance sheet?

  • Reply 27 of 80
    Quote:

    Originally Posted by CoreAndExplore View Post

     

     

    Doesn't this affect the "deferred tax" portion of the balance sheet?


     

    I don't think so because you don't know what the expenses are. Hypothetically, if iOS 8 goes massively over budget, there could be no profits or a loss on that deferred revenue.

  • Reply 28 of 80
    Dan is officially my favorite Apple investigative analyst. His column needs to have far bigger distribution than Appleinsider. Can anyone help him with this?

    Loved his previous article on Apple earnings. Here's a clip of the story:

    "Apple's sales of 33.8 million iPhones earned more than the combined sales of 211.2 million phones sold by rest of the world's top five phone makers

    And no, that's not just smartphones: Strategy Analytics issued its report of "global mobile phones," allowing Nokia to take second place in the Press Release Olympics simply by losing tremendous amounts of money in a commercial failure so epic the group is now being sold off to Microsoft for scrap.

    Given that Apple is sitting on $147 billion, an actual journalist might wonder why the company doesn't simply produce tons of "phones" to win this market share race, or why Apple only competes against itself in profits and, conversely, only against the rest of the industry in shipment numbers.

    After all, with iSuppli's estimated production costs, Apple could produce 100 million iPhone 5c units for less than $20 billion and compete against Samsung in the "give phones away" business in order to claim the top spot among phone producers. No doubt a lot of Samsung's feature phone and low end Android users would upgrade to an iPhone 5c if it were free!

    Incredibly, other companies in the phone business are actually losing money to maintain shipment levels and "growth." In fact, nearly all of them are, and the tech media doesn't seem find this at all unusual."
  • Reply 29 of 80
    Quote:

    Originally Posted by mvigod View Post

     

    Apple does a poor job of marketing itself and its financials. It is its own worst enemy.  Icahn is actually trying to help apple with this and if the street is willing to offer shares so low he rightfully feels apple should be buying them hand over fist.

     

    Borrow money at 3%.  After tax write off on interest effective rate at 2% or less.  Apple has a 15% plus earnings yield.  What part of no brainer does the apple board not understand?  When you can buy dollars for dimes you do it all day long because it won't last forever.  This is a once in a lifetime opportunity for Apple to take back 1/3 to 1/2 the company shares at a too low to believe price.

     

    The only rationale for NOT doing this is if the board is very uncertain and nervous about apple's near term future.


     

     

    I wholeheartedly agree with this.  The tax-deductible interest cost of Apple's debt is a pittance compared to the EY, and of course, also roughly equals the dividend yield to boot.  It makes so much sense, and it's just crazy that they actually slowed down the buyback in the most recent quarter.  Icahn does have a legitimate point.

     

    That said, I'd imagine the board objects somewhat to the notion of "activist" investors holding management hostage to their own myopic whims.  So, even if Icahn's plan makes sense on its face, management could see giving in to such demands as setting a bad precedent.  Also, as another poster pointed out, it's possible that Apple is holding out for a very significant acquisition.  

     

    At the end of the day, Apple's $150 billion cash hoard, 2.3% dividend, unrivaled shareholder's equity, pristine balance sheet, and unmatched cheap borrowing ability, give the company basically unparalleled financial flexibility.  In that sense, Cook and his cohorts are paying a lot in opportunity cost right now.  I expect that to change, but in the meantime growth in China and Japan, a modestly employed buyback, and a growing dividend stream will suffice for a good return.  Great returns are just around the corner when Cook sees fit to put more even money to work for shareholders.  A "revolutionary" product would be nice, and could be a catalyst for a growing multiple, but it's not necessary to make a lot of money in this stock, not at these prices.

  • Reply 30 of 80
    Quote:
    Originally Posted by CoreAndExplore View Post

     

    At the end of the day, Apple's $150 billion cash hoard, 2.3% dividend, unrivaled shareholder's equity, pristine balance sheet, and unmatched cheap borrowing ability, give the company basically unparalleled financial flexibility.


     

    Billions in the bank buys a lot of flexibility when it comes to R&D and exploring new product categories.

     

    In light of the just launched nukes from Rockstar, I'm thinking it's a great time to get into ad-supported web search.

  • Reply 31 of 80
    Dan_DilgerDan_Dilger Posts: 1,583member
    asdasd wrote: »
    Ah good point. So we are seeing some deferred revenue from 1-2 years ago now. Which means net not-yet-declared revenue isn't anything like 10B. ( which isn't one quarter either as DED seems to suggest).

    More info below the line than above as is common enough these days.

    There's a picture of the deferred revenue, there's over $10billion

    Also, there was no suggestion that Apple deferred $10B in one quarter. Don't complain about being deceived by your own comprehension issues.
  • Reply 32 of 80
    Another good article.
  • Reply 33 of 80
    Quote:

    Originally Posted by Corrections View Post

     

     

    But the costs are not deferred along with revenues. So those costs are accounted for now, and the profit is recognized over time, and as it is recognized, new costs do not appear. So the deferred revenue is pure gravy once it’s recognized. 


    I think you are incorrect. The salary of programmers updating iOS 7 for example will be incurred at a later time and that will be used to offset the deferred revenue. Logically and legally, there needs to be a matchup. 

  • Reply 34 of 80
    lkrupplkrupp Posts: 10,038member

    Okay all you genius-steins arguing over Apple’s financials... is Apple doomed or not? That’s all I want to know. Because Wall Street certainly acts like Apple is on its last leg.

  • Reply 35 of 80
    asdasdasdasd Posts: 5,686member
    There's a picture of the deferred revenue, there's over $10billion

    Also, there was no suggestion that Apple deferred $10B in one quarter. Don't complain about being deceived by your own comprehension issues.

    The article talks about last quarter and how analysts missed the news about the 10B deferred revenue. Admittedly he does waffle on in his typical labouring style and I only have so much time. Maybe he pointed out somewhere on page 902 what this actually means - how much more revenue per quarter we can anticipate even if sales were flat y-o-y but I didn't read past page 900 so I didn't get to it.

    My point is simple: if Apple had not previously deferred income the last quarters revenue would have been lower so it's all a wash if revenue isn't growing that much. The analysts would have reacted the same, which was fairly neutral despite the hysteria here.
  • Reply 36 of 80
    jungmarkjungmark Posts: 6,921member
    mvigod wrote: »
    Apple does a poor job of marketing itself and its financials. It is its own worst enemy.  Icahn is actually trying to help apple with this and if the street is willing to offer shares so low he rightfully feels apple should be buying them hand over fist.

    Borrow money at 3%.  After tax write off on interest effective rate at 2% or less.  Apple has a 15% plus earnings yield.  What part of no brainer does the apple board not understand?  When you can buy dollars for dimes you do it all day long because it won't last forever.  This is a once in a lifetime opportunity for Apple to take back 1/3 to 1/2 the company shares at a too low to believe price.

    The only rationale for NOT doing this is if the board is very uncertain and nervous about apple's near term future.

    I disagree. Crazy Carl may be in it for the long term, but how long is long. Why would 10s of billions of dollars in debt be a good thing? Once Carl gets his target share price, he will sell and Apple will still be in debt for a long term.
  • Reply 37 of 80
    asdasdasdasd Posts: 5,686member
    Now can any of you geniuses explain to a mere physics post grad like myself why "buying back stock" would lead to a price increase. The $150B should be adding to the value of the stock anyway. A company with no revenue, $150B in the bank and 1 B stock outstanding should have shares valued at $150. Otherwise you could buy $150 B for $100B were the stock at $100.

    This means any company with $150B in cash should see that much value added to the stock. In Apples case that's about $150 per share as apple does have about 1 billion stock outstanding. Spending the money to buy back the stock should keep the price neutral because the lower number of shares is offset by the reduction in cash per share which should have been priced in. It balances. Besides that they have to borrow so it's a loss, and a loss of fire power for major acquisitions.
  • Reply 38 of 80
    adamcadamc Posts: 582member
    Quote:

    Originally Posted by konqerror View Post

     

     

    Not exactly true. If they now defer $100 for software, and they didn't raise the price of Macs $100, the total revenue is the same. They just lost $7.4 billion of revenue in the current quarter, to be made up over the next year.


    Ahem, nothing is so straight forward as you claimed.

     

    While you are at it how about giving us a breakdown of the component cost so see can see whether Apple is lying as you claimed.

  • Reply 39 of 80
    adamcadamc Posts: 582member
    Quote:

    Originally Posted by sog35 View Post

     

     

    I agree with you 100%.  If you are confident the stock will rise mid/long term there is ZERO reason to not borrow and do a buyback.

     

    With one exception: They are planning a $75-$100B acquistion.  Beyond that there is no reason to have over $150B in cash doing nothing.

     

    I think Tim knows this.  My guess is they will announce another buyback one the current one is winding down.  Though I doubt it will be $150B and it will be spread over several years.

     

    It was also bad timing to change the deferred revenue method.  Without the method the current quarter would have been close to 39% and guidance for Q1 would be 40%+.  That would have easily moved the stock to $575-$600.  I just don't understand why such a move was neccessary.  Now all YoY quarter comparisions for GM are off.


    No one borrows money to buy back their own shares, they borrow money to expand their business.

     

    With better products they have a better chance of improving the price of their shares.

     

    It is a stupid idea anyway and serve only to fatten icahn's purse.

  • Reply 40 of 80
    Quote:

    Originally Posted by sog35 View Post

     

    So basically if Apple didn't change their accounting method they would have $10B more in profits the last year........

     

    I really don't see why they need to defer revenue for hardware for 2 years.  This a really conservative method.


    There was an article back a ways that explained why they deferred the revenue and it was due to a law put in place because of enron and there accounting practices.

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