Calculating iPhone reported Revenue

  • Posted: 21 January 2009 08:49 PM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

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    Posted: 21 January 2009 11:06 PM #1

    Gregg Thurman - 22 January 2009 12:49 AM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

    Greg I think you may have forgot about accessories and existing carrier payments from 1st Gen Iphone.  Apple should have moved 879.5M from current deferred to this quarter.  Which leaves 367.5M from the combination of accessories, carrier payments and about 1/16 of current quarter sales.

         
  • Posted: 22 January 2009 12:40 AM #2

    pats - 22 January 2009 03:06 AM
    Gregg Thurman - 22 January 2009 12:49 AM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

    Greg I think you may have forgot about accessories and existing carrier payments from 1st Gen Iphone.  Apple should have moved 879.5M from current deferred to this quarter.  Which leaves 367.5M from the combination of accessories, carrier payments and about 1/16 of current quarter sales.

    What I used is what Apple reported.  Apple reported $1,247,000,000 in current revenue.  That includes revenue from the prior quarter - $806,000,000.  Deducting one from the other yields an incremental increase for Q1/09 of $441,000,000.  I don’t see how accessories, etc are not reported in the $1,247,000,000 number.

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  • Posted: 22 January 2009 01:28 AM #3

    Gregg Thurman - 22 January 2009 12:49 AM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

    Gregg, I would look at the revenue adjustment (non-gaap) and then add reported revenue. Because Apple backed out all iPhone and ATV revenue then added back what was generated in the qtr. Apple added back 1.632B but since 1.247B was already there, the total is 2.879B. divide that by units (4.363M) and ASP is $660. However, that includes some ATV, accessories and carrier payments. If you figure that was about 250M, then the ASP would be a little more than $600

    The problem with using the 441M incremental is that there’s probably 200M in accessories and carrier payments there.

    Also, consider that most iPhone sales probably occurred right before qtr end, thus very little of new unit sales hit for the qtr. Thus, multiplying by 8 creates big problems. 

    From what I have been able to back into and estimate is

    Total=1247
    DR recognize- 880
    Carrier PMTs-  123
    Accessories- 75
    New Units- 170

    Those are rough estimates, still analyzing, but I think they are in the ball park.  thoughts?

    -TM

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  • Posted: 22 January 2009 02:16 AM #4

    turleymuller - 22 January 2009 05:28 AM
    Gregg Thurman - 22 January 2009 12:49 AM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

    Gregg, I would look at the revenue adjustment (non-gaap) and then add reported revenue. Because Apple backed out all iPhone and ATV revenue then added back what was generated in the qtr. Apple added back 1.632B but since 1.247B was already there, the total is 2.879B. divide that by units (4.363M) and ASP is $660. However, that includes some ATV, accessories and carrier payments. If you figure that was about 250M, then the ASP would be a little more than $600

    The problem with using the 441M incremental is that there’s probably 200M in accessories and carrier payments there.

    Also, consider that most iPhone sales probably occurred right before qtr end, thus very little of new unit sales hit for the qtr. Thus, multiplying by 8 creates big problems. 

    From what I have been able to back into and estimate is

    Total=1247
    DR recognize- 880
    Carrier PMTs-  123
    Accessories- 75
    New Units- 170

    Those are rough estimates, still analyzing, but I think they are in the ball park.  thoughts?

    -TM

    Thanks Turley.  I use a flat 8 quarter multiplied because its going to average daily sales (the way Apple commences the deferred period).  For Q1 weighting the back end is probably a little more accurate that flat line, but not by much.  I could be convinced otherwise though with some compelling evidence to the contrary.

    Until we have 3 or 4 quarters of G3 revenue behind us, its going to be very difficult to develop an accurate forecasting model.

    The nice thing as we go forward, is that the amount reported will stabilize on ever larger reported reported.  For instance, the revenue reported during Q4/08 was carried forward, then added to by Q1/09 results.  Our margin of error will be limited to the current quarter, which is becoming a smaller, and smaller, amount of total reported.

    Further the $75 you show as Accessory revenue would not be included in deferred revenue, because it isn’t deferred.  At least that’s the way I see it.  Your thoughts?

    [ Edited: 22 January 2009 02:19 AM by Gregg Thurman ]

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  • Posted: 22 January 2009 02:53 AM #5

    Gregg Thurman - 22 January 2009 06:16 AM
    turleymuller - 22 January 2009 05:28 AM
    Gregg Thurman - 22 January 2009 12:49 AM

    Well my iPhone reported revenue was off more than I would like, but in a case of two wrongs nearly make a right, my over estimation of units sold was countered by my underestimated ASP.

    OK, this is what I got for ASP during fiscal Q1, are you ready? $808.

    Apple reported $1,247,000,000.  For Q4/08 Apple reported $806,000,000.  This means that the Q1 increment was $441,000,000, but that’s more or less 8 quarters of revenue.  So multiplying by 8 should give total iphone revenue: $441,000,000 reported and $3,087,000,000 deferred.  Dividing total revenue by units sold (4,363,000) should give us ASP.  Ergo: $3,528,000,000 / 4,363,000 = $808.62.

    Did I err?  If so, how?

    Gregg, I would look at the revenue adjustment (non-gaap) and then add reported revenue. Because Apple backed out all iPhone and ATV revenue then added back what was generated in the qtr. Apple added back 1.632B but since 1.247B was already there, the total is 2.879B. divide that by units (4.363M) and ASP is $660. However, that includes some ATV, accessories and carrier payments. If you figure that was about 250M, then the ASP would be a little more than $600

    The problem with using the 441M incremental is that there’s probably 200M in accessories and carrier payments there.

    Also, consider that most iPhone sales probably occurred right before qtr end, thus very little of new unit sales hit for the qtr. Thus, multiplying by 8 creates big problems. 

    From what I have been able to back into and estimate is

    Total=1247
    DR recognize- 880
    Carrier PMTs-  123
    Accessories- 75
    New Units- 170

    Those are rough estimates, still analyzing, but I think they are in the ball park.  thoughts?

    -TM

    Thanks Turley.  I use a flat 8 quarter multiplied because its going to average daily sales (the way Apple commences the deferred period).  For Q1 weighting the back end is probably a little more accurate that flat line, but not by much.  I could be convinced otherwise though with some compelling evidence to the contrary.

    Until we have 3 or 4 quarters of G3 revenue behind us, its going to be very difficult to develop an accurate forecasting model.

    The nice thing as we go forward, is that the amount reported will stabilize on ever larger reported reported.  For instance, the revenue reported during Q4/08 was carried forward, then added to by Q1/09 results.  Our margin of error will be limited to the current quarter, which is becoming a smaller, and smaller, amount of total reported.

    Further the $75 you show as Accessory revenue would not be included in deferred revenue, because it isn’t deferred.  At least that’s the way I see it.  Your thoughts?

    Yeah, that’s right Gregg, the 75 from accessories isn’t going into deferred, same with carrier payments, just the handset revenue goes into deferred. 

    I estimate that iPhone handset revenue was $2.63B, with $170M recognized in the Qtr,  leaving about 2.4B added to deferred. Yet, 880M was taken out of deferred, thus the net change to DR was about $1.5B

    I am kinda lost on what you are attempting to do, I think we are looking at two different things, or from two different perspectives maybe, if you could kick back some additional detail, I think I could better follow your reasoning, I would like to isolate the discrepancy, so we can examine deeper and develop some conclusions. Actually, I may not be explaining my reasoning well causing some confusion, but any how, I enjoy the dialogue and think it’s meaningful/beneficial.

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  • Posted: 22 January 2009 02:59 AM #6

    turleymuller - 22 January 2009 06:53 AM

    I am kinda lost on what you are attempting to do, I think we are looking at two different things, or from two different perspectives maybe, if you could kick back some additional detail, I think I could better follow your reasoning, I would like to isolate the discrepancy, so we can examine deeper and develop some conclusions. Actually, I may not be explaining my reasoning well causing some confusion, but any how, I enjoy the dialogue and think it’s meaningful/beneficial.

    I’m not sure anybody can get their arms around this gorilla.  Apple has made the process incredibly complex, and I think done so intentionally.

    I suggest we each forecast using our own models, tweaking them as we see fit, until we find something that seems to work.  In the meantime I suggest we continue to share our thoughts on this.

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  • Posted: 22 January 2009 03:10 AM #7

    Gregg Thurman - 22 January 2009 06:59 AM

    I’m not sure anybody can get their arms around this gorilla.  Apple has made the process incredibly complex, and I think done so intentionally.

    No kidding, they sure have. I think it’s intentional too. As I alluded to in my Q4 iPhone GM analysis, Apple fervently strives to conceal iPhone margins. If ASP is tough to ascertain, then it’s really difficult to decipher product profitability.

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  • Posted: 22 January 2009 03:30 AM #8

    Gregg Thurman - 22 January 2009 06:59 AM
    turleymuller - 22 January 2009 06:53 AM

    I am kinda lost on what you are attempting to do, I think we are looking at two different things, or from two different perspectives maybe, if you could kick back some additional detail, I think I could better follow your reasoning, I would like to isolate the discrepancy, so we can examine deeper and develop some conclusions. Actually, I may not be explaining my reasoning well causing some confusion, but any how, I enjoy the dialogue and think it’s meaningful/beneficial.

    I’m not sure anybody can get their arms around this gorilla.  Apple has made the process incredibly complex, and I think done so intentionally.

    I suggest we each forecast using our own models, tweaking them as we see fit, until we find something that seems to work.  In the meantime I suggest we continue to share our thoughts on this.

    I am afraid Accounting is not as simple as deducting ‘a’ from ‘b’. We need to know ‘c’. Now to how I believe we can calculate revenues etc from Apple’s disclosures:

    I believe Apple’s quarter is made up of 13 weeks per quarter. Once every four years or so the last quarter is increased to 14 weeks in order not to fall too far out of sync with the calender year of 365 days. The deferred revenue - current means that this revenue will be recognised over the next four quarters. This means that if we start from Year 1 Q1 where Apple discloses 92 in deferred revenue - current, 23 will be recognised as revenue in each quarter for the next four quarters. We do the same thing for each subsequent quarter building up our model accordingly.

    I see that some people are trying to calculate revenue on a daily basis and build up their model from there. IMHO it makes no significant difference whether we calculate revenue on a daily, monthly or quarterly basis. The discrepancy will only be in the quarter when the sales are made. All subsequent quarter’s recognition of sales of that quarter will be identical because each quarter is the same ie 13 weeks or 3 months or 91 days. So if you wish to calculate on a daily basis you need to know daily sales. I prefer to keep it simple, assume sales accrue evenly over the quarter and thus revenue for the quarter will be half.

    Apple discloses COGS with regard to iPhone sales. However I have only found this disclosure item in the 4th quarter results. In other quarters it is buried in ‘other assets’. I will look into this quarter 8-K to see if they will disclose it separately.

    I hope this helps.

         
  • Posted: 22 January 2009 08:19 AM #9

    MacOz - 22 January 2009 07:30 AM
    Gregg Thurman - 22 January 2009 06:59 AM
    turleymuller - 22 January 2009 06:53 AM

    I am kinda lost on what you are attempting to do, I think we are looking at two different things, or from two different perspectives maybe, if you could kick back some additional detail, I think I could better follow your reasoning, I would like to isolate the discrepancy, so we can examine deeper and develop some conclusions. Actually, I may not be explaining my reasoning well causing some confusion, but any how, I enjoy the dialogue and think it’s meaningful/beneficial.

    I’m not sure anybody can get their arms around this gorilla.  Apple has made the process incredibly complex, and I think done so intentionally.

    I suggest we each forecast using our own models, tweaking them as we see fit, until we find something that seems to work.  In the meantime I suggest we continue to share our thoughts on this.

    I am afraid Accounting is not as simple as deducting ‘a’ from ‘b’. We need to know ‘c’. Now to how I believe we can calculate revenues etc from Apple’s disclosures:

    I believe Apple’s quarter is made up of 13 weeks per quarter. Once every four years or so the last quarter is increased to 14 weeks in order not to fall too far out of sync with the calender year of 365 days. The deferred revenue - current means that this revenue will be recognised over the next four quarters. This means that if we start from Year 1 Q1 where Apple discloses 92 in deferred revenue - current, 23 will be recognised as revenue in each quarter for the next four quarters. We do the same thing for each subsequent quarter building up our model accordingly.

    I see that some people are trying to calculate revenue on a daily basis and build up their model from there. IMHO it makes no significant difference whether we calculate revenue on a daily, monthly or quarterly basis. The discrepancy will only be in the quarter when the sales are made. All subsequent quarter’s recognition of sales of that quarter will be identical because each quarter is the same ie 13 weeks or 3 months or 91 days. So if you wish to calculate on a daily basis you need to know daily sales. I prefer to keep it simple, assume sales accrue evenly over the quarter and thus revenue for the quarter will be half.

    Apple discloses COGS with regard to iPhone sales. However I have only found this disclosure item in the 4th quarter results. In other quarters it is buried in ‘other assets’. I will look into this quarter 8-K to see if they will disclose it separately.

    I hope this helps.

    I put sales at the rate of 10 per day into a spreadsheet.  The first day had subscription revenue for 91 days and each day thereafter had one less day of subscription revenue thereafter.  During the first quarter revenue from 41,840 units are recorded.  Months 2 - 8 will report 83,680 units.  That leaves 41,840 units remaining to be reported in the 9th quarter (balance of 1st quarter revenue).

    It seems that the only adjustment to be made is for the first and ninth month and that adjustment is a division of the quarterly reported subscription revenue by two.

    Any error would be in the first and ninth quarter as sales ramped up, then ramped down, the error being the rate at which sales ramped up.  I tested this hypothesis using current data and guess what?  It doesn’t work.  Doubling subscription revenue during the middle months increased reported revenue to a level greater than Apple reported.

    Until I’m shown the error of my ways, I’m going to continue deducting prior quarter reported revenue from current quarter revenue, then extending that amount over the next 7 quarters.

    If Apple truly wanted transparency in iPhone revenue they would eliminate the subscription accounting.  The only reason they do it now is for the software updates they want to give away at no additional charge.

    Apple no longer participates in carrier revenue.  Apple is required to defer AppleCare revenue over the life of the service plan.  As part of that plan they could include no charge software updates.  Hardware revenue could now be reported in the sales month.  Financials are GAAP and earnings rocket through the roof.

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  • Posted: 22 January 2009 08:37 AM #10

    Apple still receives carrier payments on 2.5G phones that are still activated. Apple doesn’t receive carrier payments on the 3G. Thus, until all the 2.5Gs are replaced or 2 years elapse, payments will still accrue.  If you go back to the conference calls. management talks about payments from legacy iPhones.

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  • Posted: 22 January 2009 12:04 PM #11

    turleymuller - 22 January 2009 12:37 PM

    Apple still receives carrier payments on 2.5G phones that are still activated. Apple doesn’t receive carrier payments on the 3G. Thus, until all the 2.5Gs are replaced or 2 years elapse, payments will still accrue.  If you go back to the conference calls. management talks about payments from legacy iPhones.

    OK, Apple continues with deferred revenue on 2.5G handsets.  They could stop the subscription accounting on any 3G handset, which in a short time will account for over half of all iPhones sold.

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  • Posted: 23 January 2009 01:50 PM #12

    artman1033 - 22 January 2009 04:50 PM

    Turning to the iPhone, we sold 4.4 million handsets in the December quarter which brings our cumulative counter 2008 iPhone sales to $13.7 million, well ahead of the 10 million unit goal for the year that we set when we introduced the iPhone. We continue to expand iPhone’s geographic reach and we’re selling in over 70 countries by the end of the quarter.

    Recognized revenue from iPhone handset sales, accessory sales, and carrier payments was $1.25 billion compared to $241 million in the year ago quarter. The sales value of iPhones sold was over $2.6 billion.

    HERE is the earnings call transcript.

    4.4 million iphones sold
    2.6 billion iphone “sales value”

    So an average iphone retails for $590.90 in this quarter.


    This is a big deal.

    Terrific, thanks for pointing that out. That’s about what I had modeled. Just looking at the iPhone revenue recognized, plus the non-GAAP adjustment equals 2.88B. BUT, as you pointed out from the call, there is ~288M in accessories, payments, (ATV) in that number since the value of handsets sold was OVER $2.6B. This is what I modeled-

    iPhone Rev     1247
    Revenue ADJ     1632
    Total iPhone     2879
    iPhone Units     4363
    ASP               659
     
    Accessories   70
    Carrier PMT   130
    AppleTV         50
    Total ADJ   250
    Handset Rev     2629
    ASP   602

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    Posted: 23 January 2009 08:01 PM #13

    I agree with your numbers, but I think your carrier payments are a bit high.  I am using 15 per month and 1M remain of my estimate of 3 M total iphone 1st gen contract sales

    Pat.

         
  • Posted: 23 January 2009 08:19 PM #14

    pats - 24 January 2009 12:01 AM

    I agree with your numbers, but I think your carrier payments are a bit high.  I am using 15 per month and 1M remain of my estimate of 3 M total iphone 1st gen contract sales

    Pat.


    Yeah, I agree it’s probably high, my assumptions are a little higher than yours. I estimate a few more original and remaining. Probably original 3.2-3.3 original and 1.5 remaining. I estimate roughly more than half the 1.4M current ATT customers upgraded in Sep Q. Not sure for Dec Q. It’s just guess work, but I would say it’s probably closer to 90M than the 130M I listed previously.

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    Posted: 24 January 2009 06:11 PM #15

    This post continues with my (probably extremely boring for most) exercise of puzzling out the stuff that Apple doesn’t want explicitly disclosed in their financial reports. Yeah, I know what whoever might still be reading is thinking: “Just give me the current numbers! this old stuff is peanuts, whoopee you’re up to $23m baked-in revenue. Tell me why I should care.”

    Well, you should care because, as I’m sure you’ve heard, this will keep building up to over $1.2b currently baked into the next quarter (09Q2), and it’ll continue to build up. But the only way to get there, that is, to be able to know how much is already baked in (even before Apple tells us), is to figure out the previous figures, the non-GAAP numbers from 8 or 9 quarters before the quarter we want to predict. So bear with me for these initial baby steps. If you haven’t done so yet, please check the first part here.

    Read all: Mining for non-GAAP, ASP’s, and ATV’s (Part 2)