《Apple Inc. (A)》.pdfVIP

Apple Inc. (A) * “iPhone Revenue Recognition Strategy” “GAAP does not tell companies how to run their business.” Gerard Carney, spokesman for the Financial Accounting Standards Board. Source: CNET N, January 19, 2007 Apple Inc.’s CEO Steve Jobs announced the iPhone® at a media event in January 2007 (Exhibit 1). Jobs characterized the iPhone as more intelligent and easier to use than both traditional cell phones and current generation ‘smart’ phones (Exhibit 2). Jobs said the iPhone was Apple ’s third revolutionary product line, following the Macintosh introduced in January 1984 and the iPod launched in October 2001. In addition, he said the iPhone’s patented ‘multi-touch’ interface represented Apple’s third revolutionary user interface, joining the computer mouse used to control the Macintosh and the click-wheel used to operate the iPod. Apple released the iPhone for sale in the U.S. at 6 pm on Friday, June 29, 2007 to unprecedented fanfare, long lines and largely rave reviews. Initial pricing of the iPhone was $499 for the 4 gigabyte model and $599 for the 8 gigabyte version.1 Apple sold 270,000 iPhones during the first 30 hours making the iPhone the most successful new product release in Apple’s history. A spokesman for Apple’s partner, ATT, said, “Weve sold more iPhones in the first weekend than weve sold in the first month of any other wireless device in ATTs history.”2 Despite the impressive start, Apple’s earnings for the fiscal third quarter ended June 30, 2007 were likely hurt by the iPhone introduction. The company disclosed in their fiscal third quarter conference call with analysts that total revenue from iPhone sales was only $5 million – an average of less than $19 per iPhone and an insignificant amount co