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Apple
Conference Call and Earnings Release

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By RodgerRafter
October 22, 2008

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Jobs was a "special guest" at the conference call and did a nice job hyping all of Apple's success. After hours the stock was up about 12%.

The big issue of interest for shareholders is that Apple's iPhone sales were huge, and Jobs was trumpeting how iPhones outsold RIMM in the quarter after only 15 months in the mobile phone business.

Because iPhones have become a big portion of sales, Apple decided it would give analysts and investors a better understanding of the company's results if it gave some non-GAAP earnings that factored in the revenues they felt they were really earning with each new iPhone sold. With their official GAAP accounting, revenues were recognized over 24 months.

Based on this alternative revenue recognition, Apple says revenues would have been $11.7 billion instead of $7.9 billion. Earnings per share would have been $2.69 per share for the quarter instead of $1.26 per share.

You can read the full rationale in the press release:
http://www.apple.com/pr/library/2008/10/21results.html

You can listen to Jobs and friends in the conference call:
http://www.apple.com/quicktime/qtv/earningsq408/

My own take is that the reality of Apple's earnings for shareholders lies somewhere between the $1.26 number and the $2.69 number, though probably a lot closer to the higher number.

Only about half of the revenue adjustments are from the iPhone. AppleCare, AppleTV and "other" make up the other half. Apple accounting rationale for claiming they deserve the revenues now is that they don't really have much left to do to earn these revenues and had to select subscription accounting because of the free stuff they intend to give away over time.

At the very least, we can expect a great source of future income by GAAP measures over the next quarter to be recognized on sales made this past quarter. That implies that GAAP earnings will have a lot of room for growth.

In all, another great quarter for Apple.