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):
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.
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.