Apple reinvents Consumer Electronics

BY Jason

Published 28 Apr 2007

Every once in a while you have companies which achieve greatness with their revolutionary ideas and vision of the future. We have admired Microsoft in the 80s and 90s, then it has been Google from the late 90s, but Apple has done it more than once, first with the Macs, then the iPod and now the iPhone. They have achieved greatness from being Apple Computers to Apple Inc, probably the most admired consumer electronics company in the world.

Carl Howe writes for Blackfriars’ Marketing. "I’m still reeling from yesterday’s conference call with Peter Oppenheimer, CFO of Apple, 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.

Howe 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.

MarketCircle CEO Alykhan Jetha had this to add "On Mac OS X, you are used to seamless software updates. Periodically, the Software Update panel pops up and informs you of new updates. You can select what you want, hit the download button, authorize and boom your computer is updated. Even grandma can do this.

Well – how would you like that with your phone? New software and new versions (of the OS and apps) from Apple and you just get them –
seamlessly. Flipping brilliant! I mean, yes, you can update your smartphone, but have you tried doing it? It’s a nightmare."

The statements made by the Apple CFO were quite significant and the vision that Apple has set themselves will probably change the consumer electronics industry forever and definitely for the good.

Source 1, Source 2