Apple Earnings to Get Accounting Boost
CUPERTINO, Calif. (
) -- New
rules
implemented this week by the Financial Accounting Standards Board (FASB) are expected to give
Apple
a major earnings boost.
The rules, approved Wednesday, specifically affect Apple's recognition of its
and
revenue, allowing the
to book most of the revenue when a product is sold. Up until now, Apple products such as the iconic iPhone, which offer upgrades to software and services, were required to use subscription accounting. This meant that revenue was deferred over eight quarters, despite the fact that the company recognized 90% of the phone's value at the time of sale.
"We believe this will be a positive for shares of Apple," wrote Gene Munster, senior research analyst at Piper Jaffray, in a note released Thursday, explaining that the changes will remove an element of mystery from Apple's results. "Under the previous rules, there was about a 35% difference between the GAAP and non-GAAP numbers."
The analyst, who expect that Apple will implement the changes in December, raised his price target for the company from $186 to $235. Including items, Munster also raised his earnings estimates and now expects Apple to earn $8.21 a share in fiscal 2009, compared to his prior estimate of $5.71. For fiscal 2010, Piper Jaffray expects earnings of $8.90 a share, up from his previous projection of $6.
"These numbers provide a framework to think about the direction and magnitude of the change and assume the rule change is applied retroactively for the year," he added.
Analysts surveyed by Thomson Reuters had predicted fiscal 2009 earnings of $5.85 a share and 2010 earnings of $6.89 a share.
The rule change could also benefit other smartphone companies such as
Palm
(PALM)
, which is searching for more telco partners to sell its flagship Pre phone. Already sold by
Sprint
(S) - Get Report
, the Pre is said to have been
snubbed
by
Verizon
(VZ) - Get Report
, despite initial plans to carry the phone.
Apple shares dipped $1.68, or 0.91%, to $183.82 Thursday, as the Nasdaq slipped 1.12%.
