Apple's $100 million apology a financial wash

Apple's $100 million apology a financial wash

Summary: The financial wizards out there are putting some figures on Steve Jobs' open letter, which outlined how Apple was going to give early adopters a $100 credit after the surprise price cut of the iPhone. UBS analyst Ben Reitzes puts the cost to Apple at $100 million this quarter (Also see What Job's iApology says about the iPhone).

TOPICS: iPhone, Apple, Mobility

The financial wizards out there are putting some figures on Steve Jobs' open letter, which outlined how Apple was going to give early adopters a $100 credit after the surprise price cut of the iPhone.

UBS analyst Ben Reitzes puts the cost to Apple at $100 million this quarter (Also see What Job's iApology says about the iPhone).

Now this sum is getting a decent amount of play on CNBC. But you have to go a little deeper than the headline to figure out that the $100 million is a wash.

For starters, the $100 million is a one time charge and Wall Street excludes those things. Meanwhile, it's a store credit and not cash.

And then there's the payoff for Apple. Initial reports are that the $399 price point for the iPhone is stoking sales.

So let's add this up:

  • Jobs gives Apple customers a $100 credit and an apology. This satisfies most hard core Apple fans.
  • The charge will have minimum impact on earnings.
  • And Apple is getting more iPhone sales out of the deal. And the price cut merely puts the iPhone price tag on par with other smartphones.

It's a win-win in most cases. 

Once folks do the math, figure out that Apple fundamentals are solid and realize there are new product cycles ahead Apple shares will be in Wall Street's good graces again. The bigger question is whether Apple’s reputation takes a hit over this. My hunch is that it won’t.

Topics: iPhone, Apple, Mobility

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  • And MILLIONS in free advertising

    The story about the coupon and price drop (letting people know they can now get an iphone for $399) is in EVERY single major news source - TV, radio, newspaper, web.

    The value publicity (free advertising) of that is is almost immeasurable.
    • Nowhere more notably

      then on ABC News and it?s affiliates, which over course has a bias to over-hype all things apple as Jobs sits on Disney?s board of directors
      • No it is everywhere, worldwide. NT

      • Woo hoo!

        So, FOX supports GDubbya ... who's getting the money there?
  • RE: Apple's $100 million apology a financial wash

    I'm guessing that many people will take that $100 credit and put it towards a more expensive item like a new iPod (people who perhaps would not have purchased that new iPod without the credit). So this move may even boost sales a bit.

      after spending more than the $100 on their new ipods, they will spend even more filling it up with songs and movies at itunes!!!!

      .... and the beat goes on... further demonstrating jobs' brilliance
      BIG franky
      • [i][b]much more[/i][/b]

        I haven't seen the terms yet. You may not be able to spend your $100 in the iTunes store. It may only be usable in the Apple Store, if so, there are very few useful items for MS/Linux users. Most items are much more than $100. If you can use it in the iTunes store it drives the stats up that much more. I've only spent $5. in the iTunes store. (and a bunch of freebies from a Coke promotion) It's likely that many people may never use their $100. and it's likely to expire in 90days - use it or lose it!
        • no, i understand....

          i would doubt you could redeem it in the itunes store.... it is apple store only.... my point was simply that any items in the smaller price-tag range that would utilize the $100 credit, will most likely require further spending on itunes down the road...
          BIG franky
        • For Windows and Linux users..

          $100 at the Apple store will buy a new printer, or go toward a nice external drive,
          or laptop case or accessories for the iPhone. There are plenty of things to buy that
          aren't Mac-specific.
  • RE: Apple's $100 million apology a financial wash

    Net-net it's neutral. Real cost isn't $100 - it's the margin. Likely $37-40. In the scheme of things it's petty cash.
    • They aren't losing Money,

      They are gaining market share.

      You think that people will take their $100 dollars and buy a new iPod? Why, they already have one with their iPhone. No, instead, they will probably spend that money on a new computer. Perhaps an iMac or a Mac Book Pro or a Mac Book. Even so, they probably guarantee that they are profiting more than $100 dollars on the items that users will buy.

      This is a win-win situation for Apple, there is no real way for people to not take advantage of this offer and not have Apple profit. Okay, there is one way. If a person purchases some accessories for their iPhone and the total is right at $100 dollars. Apple would then take a loss. But how many customers haven't already bought the majority of what they need for their iPhone. Most will buy a new Mac of some kind.
      • Sorry, wont help Mac sales at all

        The cost difference between the low end iMac and an equally equipped PC from HP is about 600.00 dollars (including software and printer). A 100.00 discount doesn't change that price into a range that is close to the HP.

        Now, the iPod is a different story: What it will do is help spur sales of the new iPod as Apple is seeing the problem associated with the fact that since the iPods people own now are still chugging along quite nicely, why would they run out and buy the new one, especially at 300 dollars?

        Knock a 100 dollars off of that, and it makes it much more attractive as the price is now 200.00

        With the holidays coming, a 49 dollar iPod Nano would make a great, and inexpensive gift.
        John Zern
    • Misunderstanding the accounting

      I've been hearing this a lot, and I think people are being over-clever. If everyone
      uses the credit, then Apple's income will be 80-90 million less. The costs for what
      the people bought when using the credit remain the same. Profit decreases by the
      exact amount of the store credit used.

      Now, people routinely use coupons, discounts, rebates, etc., in order to drive
      traffic to their stores and the calculation is that there is return on investment.

      So I wonder what percentage of the iPhone customers will have used the credit by
      12/31, because that may be a indicator of the magnitude of "halo effect" the
      iPhone has given Apple and its products.
  • RE: Apple's $100 million apology a financial wash

    Less than a blip on the screen. Apple has 12B (yes that is a B) in cash reserves... PLUS the 399 price point and close out 4GB models will drag more monthly revenue from at&t to Apple as well for any inconvenience that the Apple Inc. may feel here.

    Jobs could have announced this offer from minute one and deferred much of the hard feelings here. You have to check out the shirt on FSB web site. It is perfect for the iPhone w(h)ine set we are hearing now.
    • Would not have got as much free publicity

    • Would have overshadowed new product announcements

      That, and the new $399 price, would have overshadowed the other products, especially the touch ipod.

      Announcing the coupon later, extended the Apple coverage another day. In professional terms that would be referred to as "extending the news cycle" - something that's very hard to do.
    • Moaners and complainers...

      I guess this is what Apple can look forward to in attracting the Microsoft fanbois to their platform :-)
  • Revenge on Microsoft

    I think Jobs in a game with Microsoft. Microsoft was orchestrating delay in releasing Office 2007 for the Mac. They had established plausible denial of further illegal use of monopoly power by using H1-Bs (i suppose) from Siemens to do the bulk of the work.

    We discussed here how whole consultancies have been established in Washington state to provide temporaries to Microsoft during the 100 days that Siemens or SAP or whatever can not by law provide without Microsoft hiring the employee directly. These US nationals do not get access to Microsoft project managers, they do not get full network access, they do not get meaningful work. They run "tests". Whats more and I did not realize this until today, Microsoft encourages Siemens 100 day US nationals to bill as much as they can. That supports the plausible denial that delay in Office 2007 was owing to lack of H1-Bs and not commitment.

    Jobs can stop the nonsense. US nationals who work for Siemens can be called on to testify to these shenanigans. The 100 bucks is clear indication of the value of the harm done to consumers. That payment should be coming from Microsoft by reasons above.
    • What are you talking about?

      That has to be one of the weirdest posts I have ever seen.

      First, you point to how "we discussed". Correct me if I'm wrong everybody, but nobody discussees ANYTHING with you. You simply come here to post your I Hate MS propaganda and then move on. If anybody responds at all to you its to tell you to shut up.

      Second, what the heck does this post of yours have to do with this story? The closest you get is in the last paragraph where you lay out the grandest non-sequitur I have ever seen for why Microsoft should be paying the $100 based upon the completely untelligible crapola above it. Truly, WTF man.

      Someone who is so messed up and angry like yourself must have been personally wronged by Microsoft at some point in the past. Maybe you are one of these former H1-B Visa applicants you speak of who got canned for strange behavior. You are in serious need of some medication and some therapy my friend. For the love of God go get some.
      • Be Warned! MS will corrupt your way of life!

        You don't have to have friends in order to tell the truth. And fact is, telling the truth tends to make one lose friends.

        Him or me - we are both ready to loose friends in order to spread the word that Microsoft is dangerous!

        The danger is Real!
        The Danger is Microsoft!
        Buy NO MS products or products that use MS warez - ever!