Comments on: Apple's 802.11n accounting conundrum

Company didn't have to charge for upgrade, but it would have had to defer revenue from notebooks sold with the chip if it didn't.

[larue777]

Nice

As someone who purchased a Core 2 Mac back in September I was
very pleasantly surprised to find that I would have draft N if I
decided I would need it. It felt like a bonus.

Do I care about the $2? No. If I pick up a non Apple router I'll
budget it. Maybe I'll skip an expresso.

[MicroFreak]

Me Me Me!

I want to pay the fee! And god knows I would love to have a faster
wireless connection... but my MacBook does not have the Core 2
Duo processor.... Buaaaa!

[Matthew R.]

A cup of coffee, or 802.11n

What do you expect? 802.11n was not officially released for
quite some time, you had two separate companies attempting to
gain dominance, and prove their version of 802.11n was
better....

Now to the present, Apple is charging $2.00 technically to
activate your hardware, ok and? Where are you going to use the
802.11n connection, all companies are still scrambling to either
fix, or tweak their 802.11n firmware in their routers and cards to
make them officially 802.11n compliant...

You buy the new Airport Extreme that has 802.11n and you get
the CD with the activation software in it for free... now people
here are going to say Belikin, and Linksys both have the same
issue, yes that is true, but they only make networking hardware.

Linksys does not support Apple, ever call their tech support?
Well I have, they don't supply support for OS X at all, even
though their routers technically do work with any Mac, if
anything goes wrong wirelessly, they hold no responsibility with
it. That was nearly exactly what I was told too...

Belkin, well I use Belkin in my Dual 1.25 G4, They support the
Mac OS, so in turn you probably will be getting a new driver and
firmware update notification or download on their site any day
now.

My issue with people complaining about this is where are you
going to use your 802.11n connection? Schools don't have them
yet (I know that because I am a contractor for nearly a dozen in
Mass, as a consultant for their networks) Businesses are going to
wait to upgrade, if at all, malls aren't going to be using it for at
least another 3 years, the only place that may would be the
Apple Store, or home if you ever spend the money to put it down
to get a wireless switch to make it happen.

You bought a Mac with "everything you wanted" and now you
find out it can do a bit more with an extra pay of $2.00 ok, so
you are ******** about an extra $2.00 to a song and dance that
cost you about $1200 starting on the cheap end after all is said
and done, and that also doesn't include Apple Care either... why?

***** all you want, but you have a choice, spend $2.00 going to
work for a cup of coffee from Starbucks, or Dunkin Donuts, or
wherever else you go or spend it on the download, which in all
honesty will do just as much for your health as a cup of coffee...
or do nothing at all, but stop ********... there is no reason for it
at all. You still got the laptop or computer you paid for, nothing
has changed. And as it stands now you still can't use the
802.11n connection in your house anyway unless you have an
802.11n wireless hub, so what is your complaint?

[Lee in San Diego]

We aren't complaining

From what read in these comments it isn't us Mac users
complaining.

[topbop]

One posting away from moot...

Has anybody recently purchased an Airport Extreme? This is from the Apple Store Site as shipping with it:

"CD with AirPort Utility (Mac and Windows), 802.11n Enabler for Core 2 Duo and Xeon-based Macintosh computers (except 17-inch 1.83GHz iMac), Bonjour for Windows"

..if you get my drift here, this could all be moot real soon now...

[extinctone]

Same exact problem MS is having in this story:

http://news.com.com/Microsoft+Vista+delay+to+dampen+quarterly+earnings/2100-1014_3-6151681.html

Here's another timely story about the same accounting rule. Why didn't Apple defer the earnings like MS did? Simple, there was no assured timeframe. All the rest of the arguments here are simply making noise over something Apple couldn't control because the laws demand specific types of actions.

[skguine]

I'm down $2

Rats...I just spent $2 of time reading this (entertaining and enlightening) thread! Now I'll never be able to afford "n!"

[madwalrus]

Don't Blame GAAP

Full disclosure - I don't own a Mac or use a Mac.

I have no problem with Apple charging $2 (a nominal fee IMHO) to unlock a significant hardware upgrade. It's definitely reasonable for them to do so and I would most likely have paid them for it if I were a Mac user. Mac users who don't wish to pay for it can just simply stick to using 802.11a or g.

However, having said that, it is very poor of them to blame SOX or GAAP as the reason for charging that fee.

GAAP has rules that cover what actions businesses take, but as the article mentioned, they don't tell you how to run your business. If you do A, then follow this rule, if you do B, then follow that rule. The choices belongs to the company.

As a recent WSJ article said - the IRS has rules that govern what tax to pay when you sell a stock (assuming you make a profit). If you held the stock less then a year, you pay short-term capital gains tax. If you held the stock for a year or more, you pay long-term capital gains tax. *But*, the IRS doesn't tell you what stock to sell or when to sell them.

Similarly, it was Apple's perogative to charge $2 for this upgrade. Since they had already recognized all the revenues from the sale of the laptops, they would have to go back and restate the revenues from the previous quarters if they gave the upgrade away for free. This would have potentially created much more work for them and made them look even worse accounting-wise than they are right now. The decision to charge for the upgrade was probably the lesser of 2 evils. Nonetheless, it was a decision that worked better for them accounting-wise - but potentially worse (I don't know since I'm not a Mac user) for them PR-wise.

I'm not saying that the decision to release laptops with 802.11n hardware, or the decision to charge the fee was right or wrong. They could have done things differently when they first released those laptops but they didn't. Again, that was their choice. I'm just saying that GAAP rules did not "force" Apple to take that route over another.

The article does try to cover that point but I think that many readers (both pro-Mac and anti-Mac readers) may have missed that and just focused on that $2 charge.

[Vegaman_Dan]

Simply give a $2.00 credit or rebate

I don't see the problem here. They are using a $2.00 surcharge to activate hardware that the customer already bought. That alone is rather bad karma for the company (imagine buying a car with a V8 and being told you can only use six cylinders unless you pay an extra fee to enable the extra two cylinders you already purchased- it's a great deal for the seller because you can then turn around and sell the same thing time and time again).

So if they claim they have to charge $2.00 for this, they can also issue an instant $2.00 rebate at time of checkout / download.

There. Done.

No problem.

[jcr0911]

Apple!!! ... its FAS86 accounting smoke!!!

In no manner, does GAAP and SOX do not REQUIRE a "charge" for the upgrade.

What's happening here is Apple has a heavy investment which has been capitalized on the balance sheet for development(its been a few years, but it used to be FAS86, and probably still is closely related)...

They are now at the point of releasing the software and realizing they will have to write-off a significant balance sheet item. I'm going to guess that the value is near to 30 or 75 percent of number of draft-N "compatible" units they have already sold. To publish the potential charge means it is "significant" and threatens to tarnish the current year's earnings expectations.

The revenue generated from the $1.99 charge will allow them to leave the capitalized charge on the balance sheet. It and along with the reduced future margin (-$1.99) per unit or the increased price ($1.99) of future units will "bring them to a net capitalization of development charges after amortization to zero", at then end of the product's life. (the future charge is unlikely due to market forces)...

The "rationalization" a plan for a "future" $1.99 charge immediately eliminates the need to recognize a loss based on the current balance sheet, if approved by the external auditors... and that's GAAP NOT SOX! The loss will just come in future years when it can be "peanut buttered" by furture earnings.

Its just an educated opinion...

[silvergrado]

Established Value

I own a MacBook, and won't complain about paying the upgrade,
especially now that I understand the issue (who wants to have to
restate earnings).
One thought though. It seems, given Apple did not advertise
802.11n would be coming, they did establish the 'value' of the
computer sans 802.11n, then they could just release the update as
a gift. If the IRS doesn't accept that, they are irrational. Oh,
wait......

[CitizenX]

Look at it this way folks

When cell phones were new and big and bulky, you could sign up for a plan and get a cell phone FREE.

The cell phone was free but for accounting purposes we had to charge the customer a penny for that cell phone.

Ridiculous sure but it still satisfied legal and accounting requirements.

Now was Sears trying to rip off the customers? Were they being shady? No, they were doing what is necessary to offer a "free" phone.

Do you think when you buy that new mattress at the sale where they "pay the sales tax" that that is what is happening. It doesn't work that way. You pay the sales tax, but they discount the mattress an appropriate amount to cover that amount.

[MichaelCa]

My home away from home, this is how I call the Big4.com community. Here I met so many people just like me and much more. So tell me why you shouldn?t join now? Come to: http://www.big4.com/home.html and feel the same joy I?m feeling.

[angzhang]

Many people still are not clear about why Apple choose to charge the $1.99 and this article doesn't explain it well. Apple simply has 2 choices in accounting when they sell the computer.

1. Not to charge anything for the upgrade. This means this year, they have to eat the development cost and not recognizing the revenue they made from this new feature this year because this part of the revenue has been reported last year.

2. To charge $1.99 for the development cost in this year. This way, this year of earning report is going to be better because the development expense is covered.

3. Include the charge of $1.99 for this upgrade charge when they sold the computer. This means they have to record this the revenue in the liability section of balance sheet, which will certainly reveal that this function is included. So, this is not an option for them.

I think it is just how they do accounting, different from what Microsoft would do. Both approaches conform to GAAP. If I am a Mac customer, I would be happy to spend $1.99 for this new feature. What makes me unhappy is how Apple structured this message, it makes it sound like GAAP requires them to charge $1.99.