“I’m still reeling from yesterday’s conference call with Peter Oppenheimer, CFO of Apple,” Carl Howe writes for Blackfriars’ Marketing. “He dropped the bombshell in his opening remarks:”
Before I talk about the outlook for the June quarter, I’d like to provide a little more information about our strategy for the iPhone and Apple TV and how we plan to account for them. We believe the iPhone is a revolutionary device that is years ahead of the competition. At Macworld, we demonstrated a number of the iPhone’s breakthrough features, including its pioneering multi-touch display and user interface, visual voicemail, desktop class e-mail and web browsing, and of course, the best iPod ever.
We plan to build on this incredible foundation by continuing to develop new software features as well as entirely new applications and incorporate them into the iPhone. Since iPhone customers will likely be our best advocates for the product, we want to get them many of these new features and applications at no additional charge as they become available. Since we will be periodically providing new software features to iPhone customers free of charge, we will use subscription accounting and recognize the revenue and product cost of goods sold associated with iPhone handset sales on a straight line basis over 24 months. So while the cash from iPhone sales will be collected at the time of sale, we will be recording deferred revenue and costs of goods sold on our balance sheet, and amortizing both of them into our earnings on a straight line basis over 24 months. We will continue to expense our iPhone engineering, sales and marketing costs as we incur them. This accounting policy will have no impact on cash flow or the economics of our business.
Apple’s proven capability to create innovative software gives us a tremendous competitive advantage in the consumer electronics industry. We are taking this bold step to leverage what we do best. We hope the result will be to surprise and delight our iPhone customers, which should result in happier customers and more customers as we enter this billion unit per year mobile phone market. We also plan to recognize payments from AT&T Cingular as revenue over time, as earned. We will report iPhone results each quarter that will include unit sales, and recognize revenue for iPhones, iPhone accessories and payments from AT&T Cingular.
Similar to iPhone, we plan to periodically provide new software features and enhancements at no charge to our Apple TV customers. We will also recognize the revenue and product cost of goods sold associated with Apple TV on a straight line basis over 24 months. This will be included in the other music-related products and services in the data summary we provide you each quarter. Additionally, we will provide you with a schedule each quarter in our earnings release that indicates the total deferred revenue, including the combined amounts related to the iPhone and Apple TV.
How writes, “Apple just added a whole lot of value to those required two-year Cingular contracts. What Apple just said is that unlike most phone handset makers, this isn’t going to be device you re-buy every nine months or so to get the latest model. Based on the information yesterday’s earnings call, we predict the iPhone will be a device that gets better every six to twelve months you own it. The same goes for Apple TV too. Others may talk about reinventing consumer electronics; Apple just did it.”
“If this is such unimportant news that it gets announced in an earnings call, I can’t wait to hear Apple’s big announcements this year,” Howe writes.
Full article here.
To the person who wants iChat in their iPhone, of course, everyone wants that, whether it’s SIP, VOIP, or Apple’s flavor of iChat. Just realize that it’s not a technical reason why Apple can’t put in iChat from the get-go, it’s more likely that ATT/Cingular wouldn’t allow it, so as to not cannibalize its data services. However, given time, just like DRM, Steve will break down that wall, and free us consumers from expensive data plans. It’ll require ubiquitous free wifi or wimax, but we’ll get there, and all these baby steps will get us there. We all have to think strategically, like Steve does.
why cant it sit there and beam you to your apple tv?
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You’re a putz. iPhone is already an iPod. It can be loaded up with any media when you dock it.
You’ve just come up with a more complicated way to get content.
“Bill Gates once said he saw no reason why anyone would need more than 367 kilobytes of memory in a computer.”
Well now, Bill may not have had much foresight into the area of personal computing, but I do believe he knew that computer memory sizes increase by the power of 2. This results in sizes of 1, 2, 4, 8, 16, 32, 64, 128, 256, etc.
No “367”.
I believe the actual quote was 64kb.
@AppelGuy: Gates actually referred to 640KB — the upper limit for RAM in DOS. Does anybody else remember all the wanking that had to be done to use the additional 384K of the first megabyte when memory upgrade cards became available? Of course, I still remember when memory upgrades were individual chips that came in a tube. Yikes, I’m getting old.
@bdb:
Thanks for the clarification. I love how it illustrates how little foresight he has for the future possibilities.
Seems to me that AT&T is so pleased with the advance interest in the iPhone and has fallen under Steve’s RDF that we might see iChat / VOIP on it sooner than you’d expect. I bet Steve fed them a “sugar-water” line to convince them that it’s best to be a <strike>pirate</strike> leader in technological revolution.
Both hardware devices, iPhone & Apple TV, are the foundation. Apple, Inc. really is still “Apple Computer”. It’s the OS, stupid. The computer system in each device, as we all know, is some variant of OS X. The free software updates will add value. These devices will integrate seamlessly with the Mac. Apple not just preaches, but practices true convergence in consumer electronics, from the home to the office and on the go. 2007 will be a great year not just for Apple, but for its long-time and future customers!
bdb / AppleGuy,
indeed!
This lack of foresight from Chairman Gates explains why Microsoft is where it is today.
Jay,
You have accurately described the insatiable appetite of early adopters. The key that you miss in the future success of the iPhone is that there will be plenty of consumers unlike you who don’t need more than 8MB to get satisfaction from the iPhone. In fact, there will be a lot more of them than the limited supply of used Rev1’s on the resale market can accommodate. Meanwhile, you will find that you have grossly underestimated your greed and by then will want an iPhone with 2TB so that you can carry every file you’ve ever made or copied.
Just relax and enjoy now while you can. You may not even live to Q4.
Apple, bring out your 3G iPhone at the launching date!!!
Looking forward to Free updates to a product that is not even out….
the hype is getting too much.
I remember my 2G iPod getting more functionality over time. Made me fall in love with that brick all over again. This approach will make average folks love Apple’s stuff even more. Then, more switchers will come to the light side.
Treating your customers with respect is a winner.
You idiots who say wait for Rev B or C for more memory just don’t realize that the iPhone already has between 32 and 64 times the memory of the average cell phone.
While you can never have enough memory, just think about this. These iPhones are Macs. These iPhones are not disposable cell phones. You’ll be able to sell them for at least half of what you paid for them when Rev B becomes available. The cost of being an early adopter is not as high as you make it out to be.
If you wait for perfection, you’ll never get laid.
Free updates for the Apple TV! This is great for the future of the iPhone and ATV!
http://www.appletvbbs.com
AppleGuy :
The Apple IIe had 64K so Bill set the limit (you had to set it somewhere) to ten times that i.e. 640K.
ken1w:
Two things – I reckon the payment of the AirPort Extreme firmware update was to test the legal/accounting waters, to which everyone said Huh?! Secondly, Apple now have it on record that they will be releasing new features (not just bug fixes) over time and spreading the revenue over 2 years. This will hopefully remove any legal threats.
bdb…..
my first RAM upgrade was from 256 to 512. getting old? i am right there with ya…..
On a 3G phone you normally see the caller on your screen.
Can your 3G caller see you when the iPhone’s camera is at the back of the iPhone? There should be a camera in front of the iPhone so the caller can see you and you can see the caller. Please enlighten me!
To less is more; Voip communications are taken care of via Cisco’s iphone (remember?). ichat on the other hand maybe a shared concept across Cisco’s iphone and Apple’s iphone creating a mega network across mobile and broadband connections spanning the entire World! How great is that?
Sorry, How great would that be? is what I should have said.