Now that Apple (AAPL) has finally reported a quarter under changed revenue recognition rules that push most of the money from iPhone sales up front, we can take a stab at calculating a more accurate revenue per unit. The number is way above what I've thought in the past, and it's still impossible to separate actual hardware sales from additional carrier subsidies as well as Apple-branded and third party accessories. But it gives a good picture of the revenue that each iPhone generates, both directly and indirectly.
This has been one of those figures that Apple has not reported in the past, presumably because the revenue recognition over time would have made that extremely difficult. Interestingly, Apple still avoids giving a per-unit revenue figure. But there's finally enough information to let us get an educated guess, and it suggests that my previous estimate was wildly off (though that was an attempt to determine hardware revenue, not overall revenue). First, a few caveats:
- There is still some subscription revenue -- $25 per unit -- attributed to an estimated cost of ongoing software upgrades. That number is allocated over a two year period. As Apple reports sales by quarter, not by month, it could be that units see one, two, or three months worth of subscription revenue, depending on when in the quarter they sell. However, no matter when in a quarter the subscription starts, it will have run its course within 2 years, or 8 quarters. So I'm using an "average" subscription that would start in the middle of a quarter and result in 1.5 months of allocated revenue per unit in the first and last affected quarters, with 3 months for each of the quarters in between. In other words, average subscriptions start in a quarter at about $1.5625 per unit. They then run 7 quarters at $3.125 per unit and finish in a ninth quarter at $1.5625 per unit.
- Apple's adoption of the accounting changes has been retrospective. As the most recent 10-Q notes, "Retrospective adoption required the Company to revise its previously issued financial statements as if the new accounting principles had always been applied," suggesting that the reported iPhone revenue numbers include three parts: accumulated subscription revenue for the quarter from previously sold units, the currently applicable subscription revenue, and the money seen up front from unit sales, accessories, and carrier agreements. So, I had to calculate the previously accumulated subscription revenue and back it out to get a more accurate view. If you add all the subscription revenue from previous sales to deduct, the total is $97,501,562.50.
- Given the public reports, there is no way to separately identify money from hardware, money from carriers, and money from accessories. I'm treating it all as revenue attributable to iPhones. Ideally we'd be able to see what the hardware alone brought in, but that's not happening.
- Again, using my subscription model, the amount of subscription revenue for last quarter's iPhone sales that would have been recognized is 13,651,562.50. I'm backing that out as well to get the average revenue per iPhone without subscription figures. Then we can just add $25 the remaining part of the subscription revenue ($21.88) to that amount.
- It's tough to tell whether Apple's cut of third party iPhone software sales is included in the totals. From my reading of the 10-Q, I think not, as there's a "software, service, and other sales" line item that includes revenue from application software and third-party software. So the revenue per phone may be higher, but there's no way to tease out the relevant amount. [UPDATE: Apple has said that revenue from apps sales is not significant, so not having this factor is probably not major.]
$5,578,000,000.00 (total revenue) -$13,651,562.50 (recognized subscription revenue, last quarter sales) -$97,501,562.50 (recognized subscription revenue, previous quarters sales) ============= $5,466,846,875.00 (non-subscription revenue)If we divide that number by the 8,737,000 units, we get $625.71 per unit. Now add the $25 $21.88 subscription revenue and the total is $650.71647.59 per unit. Again, this includes all money the carriers pay and all accessories revenue, whether Apple-branded or third-party royalties. It probably does not include app revenue, and there's no way to tell from Apple's public numbers what portion Apple attributes to the hardware sale itself. The result does make me wonder how much, at least, the average iPhone user spends on cases, earphones, and other accessories. If you have a guess, based on reported numbers or your experience, please weigh in.