Filed under: Analysis / Opinion, Humor, Apple Financial, iPhone
John versus Joe: iPhone earnings smackdown edition
Apple naysayers are a dime a dozen these days. I keep a few in my garage just so I can laugh at them when I wave my iPhone in their general direction and they all cry in unison, "The Zune phone is so totally going to be an iPhone killer. You know, if and when it comes out. Just wait and see."Rarely do Apple naysayers come with more unintentional hilarity than Joe Wilcox from Betanews, who, alone among reporters everywhere, uncovered a media conspiracy on a scale not seen in recent memory. Namely, contrary to what literally everyone else has reported, Apple was in fact NOT more profitable with the iPhone compared to all of Nokia's cellphone business during the recent financial quarter.
John Gruber from Daring Fireball saw Joe's post, and with his response laid the smackdown on Joe's analysis.
Gruber's post boils down to castigating Wilcox for ignoring Apple's statement of non-GAAP earnings. Basically, Apple's subscription-based accounting for the iPhone spreads its revenues out over several quarters, which it expresses in GAAP (Generally Accepted Accounting Principles) earnings. These are the earnings Wilcox looked at and said, "Wait a minute! Apple didn't make that much money at all! Murder most foul!" If you want a real idea of what Apple actually made with the iPhone over the quarter, you have to look at the non-GAAP earnings. This is something I figured out back when I edited earnings press releases for PR Newswire, and something anyone who reports on financial matters really ought to double-check before protesting to one and all that something foul is afoot.
Wilcox updated his post after Gruber's response, but his rationale is almost as funny as his initial post:
I chose to use the GAAP figures because a) Again, that's what Apple is supposed to report; b) It made for a simpler analysis; c) Apple recognizes previously deferred revenue with the quarterly results; d) According to Apple SEC filings, deferred revenue is for more than just iPhone and Apple TV. The last two points are paramount.
In other words, a) It's the SEC's fault, not mine; b) like Gruber said, I didn't bother reading past the first paragraph of the press release; c) I also didn't bother parsing through the reams of financial tables that come with every quarterly financial press release; d) Gruber is wrong and Apple TV is totally selling like hotcakes.
I showed Wilcox's post to the Apple naysayers I keep chained up in my garage, and they just kind of turned away scratching their heads awkwardly. I don't think that's a good sign for the supposed "misreporting" of Apple's iPhone profits that Wilcox thinks he's uncovered.
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Reader Comments (Page 1 of 1)
Tim said 9:26AM on 11-16-2009
Besides John Gruber, who gives a fat rats @$$. Apple makes a boat load of money either way you dice it. Nokia won't be shuttering it's doors anytime soon either.
What I want to know is, where's my iTablet?
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oZ said 9:59AM on 11-16-2009
Where's my N900?
Jordan said 11:09AM on 11-16-2009
I don't get why Apple fans care so much how much Apple makes. What's it going to do for them?
You can sell ten pairs of shoes for 1 million dollars and make more than if you sold 20 pairs of shoes for 10,000 dollars. Just because Apple made a lot of money means nothing against the number of products sold.
It boils down to the Apple tax, which does nothing for the end consumer.
I don't think I have ever once cared what the stock value of Microsoft was, yet I still bought their products. Same with Apple. Just buy the product you like, not the one your beloved makes, and you will be much happier with your life.
SIP said 12:02PM on 11-16-2009
@Jordan:
A lot of TUAW readers have also invested their own hard-earned cash in Apple shares, so they have a vested interest. Apple making shed-loads of money in an economic depression is good news all round.
Apple is debt-free and has enough cash reserves to buy 30 companies each valued at One Billion Dollars!
Tony said 12:16PM on 11-16-2009
@Jordan said: "Just because Apple made a lot of money means nothing against the number of products sold. "
Wow. Please take a business/economics class. Every business worth its salt would trade a higher number of products sold (the "market share" argument) for higher profits any day. Every single time. If not, then get the hell out of business because you have no clue what you're doing.
Jordan said 12:23PM on 11-16-2009
@Tony: Obviously, the business would, but if you'll re-read what I wrote, what does it mean for the consumer? Unless the consumer has interest invested in the company, what do they care how much the company makes. If it's coming from a company that has a smaller market share, doesn't that mean the company is charging a lot and as a consumer I'm paying a lot of money for a product? Again, what does a company making a lot of money mean to the consumer? NOT the business.
Tony said 6:43PM on 11-16-2009
@Jordan - a company making money means they'll likely be around for a while, coming out with new products, supporting those you may already own, etc. For a consumer, that's important. The market share myth has been thoroughly debunked. In the grand scheme of things, the iPhone has a relatively small overall market share - yet it has a huge 3rd party infrastructure (cases, apps, chargers, etc.,) a huge slice of the mind-share, and is hugely profitable. It's not going anywhere anytime soon. Same can be said for the Mac, which has been in the low 10% range for a while now, yet is a huge success. Apple sells more computers than most mfgs, and makes more money as well. That 9-10% market share represents many, many millions of computers.
Jordan said 1:36PM on 11-17-2009
@tony: I'm not talking about the company going out of business nor did I ever even allude to that. What I'm saying, and you're avoiding, is that if a company knowingly has a smaller market share, yet is making more than other companies with similar products, as a consumer doesn't that tell us that we're paying too much for the product. A consumer doesn't want to hear how much a company made, especially nowadays. It makes them feel like they're just getting ripped off by an evil corporation.
Kelmon said 10:09AM on 11-16-2009
An entertaining posting, even more so than John's.
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mitch said 10:25AM on 11-16-2009
Wilcox displays a very deep level of ignorance.
It's OK to not understand GAAP vs non-GAAP financials or be able to make sense of an income statement, etc.
However, it is completely crazy to be ignorant / uneducated and then scream that everyone else got it wrong and they should listen to you and your 3rd grade financial education.
What a complete Tool!
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Mentok said 10:48AM on 11-16-2009
Do you morons even KNOW what GAAP means??
Generally Accepted Accounting Principles, which MUST be used on reports to the SEC.
The ONLY financials that COUNT.
Accepting non-GAAP is like saying 'ignore all these liabilities in the corner over here.
Wilcox is right, the rest of you are a bunch of CNBC type entertainment douchebags. CFOs have quit companies whose management have insisted on pushing non-GAAP figures to shareholders and other parties because non-GAAP figures are nothing more than entertainment.
And to the TUAW.Boy: Why don't you talk to an accountant before you write stuff like this??????
-Drunken Economist
http://mindtaker.blogspot.com/
http://twitter.com/drunk_economist
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LD said 11:20AM on 11-16-2009
Mentok, I'm afraid you don't understand what the discussion is about. Apple defers revenue over 8 quarters for iPhone. Nokia, meanwhile, reports all revenue upfront. So by comparing those two numbers you aren't making a valid comparison.
Apple also reports the non-GAAP revenues and profits. There has recently been a change in the accounting laws that would allow them to make their officially filing using this method, though currently they do not. However, they do get the cash upfront from the carriers so it's money in the bank. They just defer it over 8 quarters.
To properly compare Apple and Nokia one must compare similar accounting methods, which Wilcox did not. He used deferred in Apple's case and non-deferred in Nokia's case. Probably because, like you, he doesn't understand the difference.
kenc29 said 9:18PM on 11-16-2009
@theDrunk, perhaps you should drink less. Did you know the FASB is allowing Apple to modify its GAAP reporting? That they are being too conservative in deferring iPhone revenues? Yes, there's a new rule, and Apple has the next 5 quarters to implement it, where they can count the majority of iPhone revenue in the quarter sold, and just an appropriate amount needs to be deferred. Essentially, the value placed upon software updates. Seeing as iPod touch users have paid $10 for those annual updates, it is easy to see that Apple will eventually count about $600 at time of sale and about $20 will be accounted on a subscription basis.
Having said that, the original analysis by Strategic Analytics was to determine Apple's actual revenue and profit on the iPhone. Any other determination would be pointless. They used non-GAAP figures to do the calculation. GAAP numbers would have been nonsensical. Then again, you know that as you are an economist. Of course, you could have been drunk at the time.
Joe Wilcox, did NOT have the common sense to read the whole press release from Strategic Analytics, or he would have figured out that they used the non-GAAP figures. His whole mental gymnastics was pointless, seeing as he didn't do the basic factchecking to begin with. Gruber ripped him a new one, since it was obvious what Strategic Analytics did.
instig8r said 12:01PM on 11-16-2009
Mentok, you oughta lay off the sauce. If you want people to listen to you you shouldn't BRAG about being impaired by brain-destroying substances. They'll just shake their heads sadly and walk away. Then, after your haze dissipates you should go find something true to say. Only then will you start on your long road back to credibility.
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neilxxx said 12:06PM on 11-16-2009
Hey, numbers are hard!
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johnmc said 4:28PM on 11-16-2009
I honestly read the headline as iPhone earrings edition and thought it was about this post:
http://www.tuaw.com/2009/11/14/the-gift-of-love-the-gift-of-recycled-mac-and-iphone-jewelry/
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jeff said 9:14PM on 11-16-2009
Gurbuer is tool and sounds off on all sorts of topics where he has no idea what he is talking about, yet writes like he does. He's great at Apple design, and annoying on everything else. His posts on economics, financials, and politics are unbearable.
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Matthew said 10:18AM on 11-17-2009
As an accountant and a computer geek, rarely does something come across the internet that is as exciting as an earnings war between two technology companies!
I can see where the disconnect could be for those who don't understand these things. As an accountant, I know that while GAAP is required for their SEC filings, GAAP is simply one way to look at the broad picture. Interestingly enough, where some have said that GAAP is the end and all that matters, I would postulate that the IRS would have a thing or two to say. Specifically regarding the amount that Apple recognizes as profit in this Q or say in 2009 in total. While FASB and the SEC required (until they recently changed this...) a conservative estimate of the profits, ie. the reporting of the profit over a 2 year period, the IRS has a different take on the situtation. While I'm not an accountant for Apple, I would be very suprised if they were not required under tax purposes to recognize the full income and pay tax on the full amount in the year the sale takes place. IRS allows installment sales in certain instances, but this is not an installment sale, rather a defferal of revenue, and that is something the IRS generally requires an adjustment from Accrual (GAAP) to Cash and full recognition.
Many industries struggle with these issues, it's what makes accoutants' lives fun and exctiting. If you're really interested in GAAP vs. Non-GAAP warfare, look at an Oil & Gas company, the wars fought over those financial statements are quite intense!
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