Search This Blog

Thursday, April 23, 2009

Apple deferring iPhone sales revenue? Heresy!

[This post also appears on the Yankee Group blog at]

I've been tuning into the Apple earnings call, and have been amazed at how well they are weathering the current economic downturn (compare their results with Nokia's and you'll see what I mean). But on that call, I just heard one of the odder things I can remember, namely that revenue recognition for iPhones sold after March 17, 2009 will be deferred until the iPhone 3.0 software f is released. Let me say that again in a different way: From the point of view of its business accounting, Apple won't consider the iPhone 3Gs shipped to customers since March 17 sold until iPhone 3.0 comes out. For any normal hardware business, that would be highly unusual. For a consumer electronics company that lives on tiny margins, that's just crazy talk.

What I find simply astonishing is that none of the financial analysts are asking questions about this strange policy; they're doing their usual drilling down into the details of how the margins and ASPs of all the products have changed. But to me, the big news here is hiding right in plain sight: Apple expects iPhone 3.0 to have a big affect on its business results going forward. And three months from now, I expect people will be asking themselves how they missed it.

I said in my recent report that Apple is reinventing the mobile phone business by creating Anywhere experiences. I think Apple just told the financial analysts that it doesn't intend to rest on its laurels.

FOLLOWUP: Yankee Group director Josh Holbrook here noted that I had missed the fact that Apple did this last year as well with iPhone 2.0. Another commenter noted that Apple only moved the revenue from about 500,000 iPhones (the ones sold between March 17 and the end of the quarter) into the next quarter or two, resulting in only a few million dollars of revenue moved. All true.

But the reason that this has piqued my interest is that Apple already defers the majority of revenue on iPhones by spreading out the purchase price over 24 months. The reason it has given for this practice is to allow it to provide free upgrades. So why does Apple now feel it necessary to further defer revenue, when it already has an accounting model in place to deal with this issue?

Perhaps my befuddlement will make more sense if I ask a slightly different but related question: How many companies hit by the recession are trying to defer reporting revenue and profit they have already delivered on?

At the moment, I only know of one of them.