Apple’s New Numbers: Dialing Up Its Mobile Phone Results

Apple’s New Numbers: Dialing Up Its Mobile Phone Results

Summary: The most notable number from today’s Apple earnings call: 39%.That is the percentage of its sales that Apple says went to the iPhone in its fourth quarter, which ended Sept.

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The most notable number from today’s Apple earnings call: 39%.

That is the percentage of its sales that Apple says went to the iPhone in its fourth quarter, which ended Sept. 27.

All told, Apple said it sold $4.6 billion worth of iPhones worldwide, in the quarter. In unit terms, it sold 6.9 million, propelled by the launch of the iPhone 3G. Suddenly, it is past its 10 million units goal for all of 2008.

Now here’s the mathematical rub: If you took that number and divided it by Apple’s official sales for the quarter, $7.9 billion, you’d get the impression that Apple is, in one fell swoop, more of a mobile phone company than a computer company. After just 15 months in the business.

After all, $4.6 billion divided by $7.9 billion woud be 58.2% of sales.

But the $7.9 billion is based on generally accepted accounting principles, aka GAAP. The $4.6 billion is not.

Apple uses what is called “subscription accounting,’’ in its official reporting of its fiscal results, for both the iPhone and the Apple TV. This is because the company may provide new features and software to power these two products, over their expected lives. As a result, it only recognizes, in any given quarter, a straight-line percentage of their revenues and costs. And if a loss is expected, it is taken up front.

So, for the first time, in a move trumpeted by CEO Steve Jobs, in a rare appearance on an earnings call, Apple will begin reporting “non-GAAP” results each quarter, in addition to its results that meet official accounting standards.

Here's how the reported numbers (on the left) compare with the new numbers (on the right):

apple’s new numbers

Those alternate results account for all sales and all costs with the iPhone and Apple TV products as the units are sold.  This is how sales of Macintosh computers are recorded.

So, if you take the same approach to all Apple products, then Jobs is saying Apple can be considered an $11.7 billion company now, not $7.9 billion. And its bottom line would be $2.4 billion, more than double its official report of $1.1 billion.

If you then take the $4.6 billion of iPhone sales against $11.7 billion of sales in Apple’s alternate, new numbers, you get 39%.

Meaning: Phones are still a minority of sales. But, hey, in little more than a year, the mobile communications business has become almost half of Apple’s business.

In fact, if you were sad to see Motorola sink as a pre-eminent homegrown supplier of mobile phones, don’t worry. Apple, Jobs submits, is now the third largest supplier of mobile phones in the world.

His accounting:

Nokia, $12.7 billion Samsung, $5.9 billion Apple,  $4.6 billion Sony Ericsson, $4.2 billion LG, $3.4 billion Motorola, $3.2 billion Research in Motion (Blackberry), $2.1 billion

All told, Apple picks up $3.7 billion in sales, by converting subscription accounting to more conventional accounting of sales of electronics sales. It picks up $1.3 billion of net income, as well.

You have to believe most of that $3.7 billion in jacked-up sales came from the iPhone. But Apple did not break out the "GAAP" number for iPhones or the non-GAAP number for Apple TVs.

So if Apple is trying to give “added transparency" with the second set of numbers, as Apple CFO Peter Oppenheimer contends, , there’s still a step left.

Apple should break out both the old and new numbers by product line: Mac desktops, Mac portables, Mac music (iPods and iTunes),  Mac communications (iPhones and app sales) and Apple TV.

Nonetheless, Apple has transformed itself from a computing company to a personal digital devices company, seemingly overnight. In this quarter, a front-rank mobile phone company clearly emerged.

The GAAP numbers show it. The non-GAAP numbers show it even more.

Topics: Apple, Banking, Enterprise Software, iPhone, Mobility

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7 comments
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  • Apple's fortunate accounting position

    When you look at the current financial mess in this
    country Apple is fortunate to be able to delay
    reporting revenues under the subscription
    approach. That deferred will be partially reported
    in 2009 when consumer oriented companies are
    going to be working hard to make a profit.

    Apple is also wise in disclosing the deferred
    revenues as it lets investors know what actually
    happened last quarter and how those deferred
    revenues will impact future quarters.

    The continual stunner for me, however, is Apple's
    continued growth of free cash - now $25 Billion.
    That protects Apple from financing issues during a
    recession and allows them to make acquisitions
    when it's to their advantage. (BTW, check Dell's
    market cap to see the significance of Apple's cash
    holdings.)
    Ken_z
    • that's funny... apple could buy Dell cash...

      and still have change left over...

      hey Michael Dell... remember when your advice to Apple back
      in '97 was to just close up shop and just give the money back
      to investors already! how does that crow taste?

      that's funny as hell!
      doctorSpoc
      • Not good to gloat

        Whether you like or dislike Dell
        products, the company is a US company
        that provides a lot of jobs. When Dell
        cuts back, it hurts us more than it
        helps. When their stock drops, it hurts
        a bunch of people with money invested
        in retirement accounts, etc.

        It's sort of like people crowing that GM,
        Ford, and Chrysler "deserve" their
        current problems and "should" go belly
        up. The failure of any of them only
        hurts the US and many American
        workers. Such a failure is never good.

        Apple makes superb computers driven
        by, in my opinion, the most reliable OS
        out there. At the retail level, Apple
        stores have reintroduced something lost
        on most retailers: service. They deserve
        their success. That does not mean that I
        should take any pleasure is difficulties
        of Dell, etc. In fact, I'd rather see Dell
        also make superb machines with a rock
        solid OS, maybe a Dell version of Linux
        or something. That would benefit all of
        us.
        j.m.galvin
      • Here's a stark comparison

        Apple has $25 billion in cash and no debt.

        GM has $20 billion in cash, $35 billion in long-term
        debt and $80 billion in other long-term liabilities.

        http://finance.yahoo.com/q/bs?s=GM

        TST
        Tom Steinert-Threlkeld
  • An iPhone is a computer

    albeit a limited one but it is phar more than a phone.

    Apple sold more computers than in any quarter in its history, did it not?

    It's really nice to see this growth because it makes the competitive landscape better. What is really shocking is that it's growth comes at the expense of Dell and others that think people base their decisions principally on price, which any marketing person will tell you is false. In fact, very few people make price the single most important factor in purchasing decisions. Only the very poorest are forced to do so and even THEY don't always choose the cheapest.
    mlindl
    • You're right...

      ...most people don't make choices on cost alone and most people still buy an HP or Dell.

      Woops!

      Can I also ask something else here - is Apple's non-GAAP figure on the same basis as Nokia's and Samsung's? Also, third biggest by revenue - if it's true - is not the same as third biggest by volume.
      Sleeper Service
  • Slightly "fuzzy math".

    Apple's SALES DOLLARS figures do put it in 3rd spot, but being that their phones cost more than the average phone, its NUMBERS of phones sold, in comparison to other manufacturers is, substantially less.

    As a total of worldwide sales are concerned for 2007 (the only full year numbers available at this time), Apple had 0.6% of sales worldwide.

    http://www.switched.com/2008/01/25/1-1-billion-cell-phones-sold-worldwide-in-2007-says-study/

    Yeh...yeh...I know...Apple has sold a boat load MORE phones in 2008 worldwide, but most likely nowhere near enough to put it in third place, for sheer NUMBERS of handsets sold.
    Mark-Twain