The effect of Apple's iPhone accounting.

[whooleytoo]

An interesting side-effect of Apples 8 quarter reporting of the iPhone revenue, is how - with 'delayed' revenue - it'll have the effect of exaggerating iPhone revenue in later quarters. Consider:

Let's say iPhone sales for the next 4 quarters are 1m, 2m, 3m, and 4m.

Apple will record the iPhone revenue during those quarters - in thousands of units here for simplicity (multiply by $499 or $599 to get the actual amount):

1st: 125
2nd: 375 (125 + 250)
3rd: 750 (125 + 250 + 375)
4th: 1250 (125 + 250 + 375 + 500)

So, if the sales increase 300% over those 4 quarters, the reported revenue increases 900%. If you look over the course of the entire 8 quarters, the effect is even more dramatic: if sales go from 1m to 8m over the next 8 quarters (700%), the reported revenue increases 3500%.

Obviously analysts will likely have access to actual iPhone sales figures (unless Apple includes another odd "iPhone & accessories" sales category), but it will have the effect of putting a very rosy complexion on Apple's revenue over the next 8 quarters particularly.

 

[jlwillia]

not a conspiracy...

I don't mean to sound like I'm coming from Apple's legal department, but....

Anyone who has taken an accounting course in college knows that the government now highly regulates and oversees accounting practices of publicly-held companies. It's not as if Apple is somehow recording their profits in a manner than is inconsistant with any other company.

GAAP (Generally Accepted Accounting Priciples) ensures regularity and consistency in how financial records are kept.
http://en.wikipedia.org/wiki/GAAP

Sarbanes-Oxley is the Act which came about after the whole Enron and Worldcom incidents that ensures that the public has full disclosure regarding the methods of financial recordkeeping.
http://en.wikipedia.org/wiki/Sarbanes-Oxley

If Apple was breaking either of these laws, we would have alot more to worry about than when the first update for our iPhone will be out....

 

[whooleytoo]

I'm not suggesting any fiddling; but it is unusual (I even read one analyst suggesting it was "unprecedented").

And it will have the effect I've mentioned above - iPhone revenue will be very low for the initial quarter or two, but then the revenue growth, and the rate of change of the revenue growth, will be very positive.