Apple, the iPhone Company

Illustration for article titled Apple, the iPhone Company

Apple watchers can now see how truly huge the company's iPhone business has become, thanks to a new accounting method the company started using this past quarter.

In less than three years, the iPhone has grown to become Apple's biggest business—up from zero.


Specifically, during Apple's December quarter, the company reported $5.6 billion of iPhone-related revenue, up 90% year-over-year. That edged out the Mac business ($4.5 billion) and iPod business ($3.4 billion) for the second quarter in a row and the third time ever. It was the first time the iPhone has beat the Mac and iPod businesses by more than $1 billion each.

And this despite Apple missing Wall Street's expectations for iPhone sales, thanks to increased competition from Google Android and other smartphones.

Why the new visibility? During the quarter, Apple started taking advantage of new accounting rules that lets it report the vast majority of revenue from iPhones and Apple TV devices immediately. Previously, it had to spread the revenue over 24 months to account for free software updates it would offer those customers.

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Hmmm interesting... After reading Conspiracy of Fools: A True Story for my Economics class when I was getting my MBA a couple years ago, I find this a little bit disturbing.

Enron did the same thing essentially - they "estimated" what kind of profits they'd be making on a project and "realize" all of the revenues up front. At first the SEC said no when they tried to do this, but then got them to acquiesce later. Those projects turned out to be complete failures and huge wastes of money (plants in India with political instability, a project in Brazil that never got started).

What really screwed Enron was that it was getting increasingly harder to make each quarter look good since the last was so profitable, so everyone in management was scrambling to get one of the aforementioned projects that would lead them to their huge bonuses.

I'm sure Apple's business climate and projects are more predictable and less volatile than the ideas and plans Enron had, but shouldn't this just not be allowed.