Last Updated Oct 18, 2010 6:32 PM EDT
You'd think that by now the analysts would have learned to add a significant "downplay expectations factor" that they should have come to know and love. For example, look at the number of iPhones sold. Apparently analysts expected 11 million, versus the 14.1 million that Apple actually sold. But why did they shoot so low? Even back in June I estimated 13 million when there were indications of how hot the iPhone 4 might be. In July I thought that the combination of all iOS devices would hit 17 million at a bare minimum, and that the combination could certainly top 20 million, maybe reaching 23 million.
The company sold 4.2 million iPads. (Analysts expected 4.7 million -- showing that they bought too much into hype and too little into reality). Add 4.2 million and 14.1 million and you're at 18.3 million. Now toss in the iPod touch and, although Apple doesn't break out those sales, there were 9 million iPods total sold. I think it's pretty safe to think that Apple moved 21 to 22 million iOS devices during the quarter.
And what does the market do? Shares drop by 7 percent after hours because Apple didn't get near the analyst iPad consensus numbers. Give. Me. A. Break.
I am hardly an Apple apologist or fanboi, but that's one of the most ludicrous reactions to corporate performance I've ever seen. Anyone who focuses that much on the iPad and misses the strength of the iOS platform -- and its potential (I'd say likelihood) to grow into desktops and laptops -- should just check out of the tech market now and go watch milk prices. Even six months ago, broaching the idea of selling more than a million iPads a month would have gained you raised eyebrows. Now the analysts are disappointed? Given that they couldn't get close to earnings or even the number of iPhones, when there's a fair amount of movement history and pattern to guide a ballpark guess, I don't see why their views on iPad movement should receive any credibility.
OK, flame off and back to some analysis that helps explain at least part of Apple's performance. With the onset of the iPhone 4, the company changed the way it handles revenue recognition for the iPhone, iPad, and iPod touch. Previously, Apple would account for $25 of sales as a right to future upgrades, amortized over a two year span. For iPhone models prior to the iPhone 4, that amount was $25. Now it is $10, which means that the total additional recognized at sale is $15 plus another 94 cents (rough difference in amortization), or about $16 total.
To get a clean comparison, we have to subtract $16 times the number of units. Still an impressive number, of course, but worth mentioning for the sake of accuracy. Similarly, Apple amortizes $10 of each iPad sale over two years, so the amount per unit is actually higher.
Apple has also done with the iPad what it does with the iPhone, and includes "related products and services." So we're back to the same problem as with the iPhone. It's possible to calculate a relatively accurate average revenue associated with a unit sale, but it's impossible to decipher how much the average iPad costs nor how much in accessories and services Apple lumps in.
Given that, it's also difficult to estimate how much margin the average iPad brings in. Because of that, calculations that people do (including some I've tried myself in the past) probably hold no weight at all. For example, to talk about how much "profit" the iPhone pulls out of the smartphone product segment rests on significant amounts of guesswork.
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