Analyst: Apple’s iPhone a ‘bandwidth hog’

LTE no one cares about 3G!

I suggest AT&T roll out extensive upgrades to its 3G network, and when the 3G iPhone comes out, we can leave EDGE behind.

These corporations are greedy pigs, they want their money and yet don’t want us using their service at the level we want.

You know I don’t have an iPhone but the statement that AT&T is worried about the iPhone being a bandwidth hog at 100 MB per month on average is ludicrous.

These customers are paying premium prices in extended contracts and AT&T acts shocked that customers actually want to use the service promised by them?

What? Did AT&T think their customers would treat AT&T as if they had made a charitable donation to the Sisters of Catholic Charity?

We Americans waste far too much money on vapid and vacuous services bought from hucksters who treat us with contempt.

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“i would imagine iTouch’s would also be the same since they share the same software update.”: New Zealand, Apple specifically accounts for iPod touch sales at the time of the sale, rather than spreading it out. This was the explanation for the $20 charge for the iPhone January 2008 update for iPod touch users, and the “nominal” charge expected for iPhone 2.0 software in June, as Jobs already said. If you look at the financials, you’ll note deferred revenue is shown only for iPhone, Apple TV (which includes free software upgrades), and AppleCare (their hardware maintenance agreement). Also, iPod touch revenue and margins were mentioned during the current quarter as part of the iPod sales situation.

I believe they chose to realize all iPod touch revenue to be consistent with the rest of the iPod line-up, treating the iPhone as a separate beast.

AAPL will have another blow out quarter (june 08) as all iPhones bought after march 6th have not had their revenue included in the latest results. i would imagine iTouch’s would also be the same since they share the same software update.

based on this, i reckon the revenue would have to be in the hundreds of millions.

2 billion dollars currently stockpiled to be deferred over 24 or so months. this is huge. (and growing)

personally i think its a strategy apple has employed to make sure every quarter has a good kickstart (revenue being recognised) even before a mac or ipod has been sold.

they did the same trick back in the late 90’s selling off small parcels of ARM shares to bulk up earnings allowing mr jobs to strut his stuff to analysts.

to be fair, i thought it was a good strategy then and i’m liking it now.

Sorry, I realize that I made a small mistake in my first comment regarding the GM guidance. A revised comment would be:

Imagine, what else he said, forward guidance on GM was 33%. That’s almost exactly what this quarter’s GM was at 32.9%. While it’s indirect, there’s no reason why we can’t do a quick-and-dirty calculation on what EPS Apple is really expecting. Last quarter they had $7.5B in sales. Next quarter they expect 96% of that with $7.2B. Well, they just had $1.16 eps, and 96% of that is $1.11. Add a fraction for the GM difference between 32.9% and 33%, and you can see, Apple’s actual eps guidance is about $1.12, with analysts expecting $1.10.

In the conference call, you definitely get the impression that Oppenheimer does NOT want to do the math for you. He snippily answers the Bear Stearns analyst by essentially saying that. Here are the numbers, you can do the math. “Well, you’ll have to make your estimates but we sold 1.7 million phones during the quarter. We made the announcement on March 6th. You know what we sell the phones for and we recognize the revenue over 24 months.”

Additionally, the analysts didn’t know because Apple hadn’t announced it, so they couldn’t factor in that Apple was not going to factor in iPhone revs after March 6th until the Software ver 2 is delivered in late June. That’s going to cost about $100M if they sell another 1.7M iPhones. So, comparing apples to apples, you’d have to adjust Apple’s revenue number up $100M to $7.3B, to compare it to the analysts’ $7.2B.

The bottom line is once the analysts look carefully at what Oppenheimer said, they’d realize that Apple’s guidance exceeded analysts’ expectations. Adjusted revs were $7.3B to the analysts $7.2B and eps was $1.12 to the analysts’ $1.10. These are minor details, but the story in the media changes significantly when Apple’s actual guidance is a little higher than analysts’ expectations rather than 12% lower.

Second point: Perhaps, even more important than the above, I just read the comment from Shaw Wu, stating that Apple’s deferred revenues are difficult to understand!

“AAPL’s accounting treatment of iPhone and Apple TV revenue where hardware revenue is amortized over 2 years or 8 quarters remains somewhat confusing and is unprecedented”

Is that crazy or what? A commonly quoted analyst is STILL confused by Apple’s deferred revenues. In fact, all the analysts are still confused. How do I know? Because they all report Apple’s revenues, post-accounting change, directly against Apple’s revenues, pre-accounting change. That’s an apples to oranges comparison. Have you seen all the earnings news reports? Apple sales were $7.5B vs $5.3B last year. But, as I pointed out, the $5.3B was using the old accounting method with no deferred revs, while the $7.5B is the using the new accounting method with deferred revs.

Do people realize that the deferred revs are additional to the $7.5B, and not included in the $7.5B? I have run some rough estimates and I calculate Apple had about $8B in sales last quarter, but $500M was deferred. What if Apple had reported $8B in sales and not $7.5B? Don’t you think investors would have reacted differently?

The proper apples to apples way to have reported the revenue figures would have been something like, Apple had $7.5B in revenues, with an additional $500M deferred, compared to last year’s, $5.3B in revenues with nothing deferred. That’s apples to apples. The other way to look at it is to say, how would the numbers have looked if Apple hadn’t changed their accounting to include deferred revenues? In that case, you would have seen Oppenheimer say something like, Apple had $8.0B in revenues compared to $5.3B last year. Because the news media, quoting analysts did NOT report Apple’s revenue figures either way, then clearly none of the analysts are making apples to apples comparisons, and none of them, like Shaw Wu, understand how to properly account for the deferred revenues.

Here’s an even more interesting thought. Remember the Xmas quarter? $9.6B in revenues. Shortly thereafter Apple’s stock tanks and drops from $201 to under $120. What if Apple had announced $10.5B in revenues? Would its stock have tanked as much? That $10.5B is what I calculate Apple’s actual sales were in the Xmas quarter, if you don’t defer iPhone and AppleTV revenues.

If you don’t believe me, read what Carl Howe of Blackfriars wrote back last June about Apple’s deferred revenues. He was not at all sure that analysts would understand the implications, and he was right. They haven’t.

Two comments:
First, Apple’s CFO stated forward guidance was $7.2B, inline with expectations, and EPS of “about $1″, while expectations are $1.10. Let me be clear, Oppenheimer stated clearly, “about $1″. He didn’t say one dollar and zero cents. He said, “about”. In other words, people are assuming he meant $1.00, when he said nothing of the sort.

Imagine, what else he said, forward guidance on GM was 32%. That’s almost exactly what this quarter’s GM was at 32.9%. While it’s indirect, there’s no reason why we can’t do a quick-and-dirty calculation on what EPS Apple is really expecting. Last quarter they had $7.5B in sales. Next quarter they expect 96% of that with $7.2B. Well, they just had $1.16 eps, and 96% of that is $1.11. Take away a fraction for the GM difference between 32.9% and 32%, and you can see, Apple’s actual eps guidance is about $1.08, with analysts expecting $1.10.

In the conference call, you definitely get the impression that Oppenheimer does NOT want to do the math for you. He answers one analyst by essentially saying that. Here are the numbers, you can do the math. And, if you do do the math, you realize how important that little “about $1″ becomes.

Wu is really in the hole, he recommended his clients to sell Apple and now its shares’ price had appreciated so to save face he is doing a song and dance. Analysts’ guidance should be taken with a pinch of salt and they should be sued especially ‘Toni iphone gathering dust’ if they keep on coming up with guesswork and irresponsible reports.

ex ped: Wu did not recommend that his clients sell Apple. His rating went from Buy to Neutral.

100 MB a month is bandwidth chicken-feed.

SmartGuy is right-on; furthermore, watch out when the iPod Touch iTexPro is released as a PDA device, far superior to the Newton… iPhone who?

iPod profits were 8% Y/Y though units grew only 1%. This means that many are moving to the higher margin iPod Touch. When the Touch has a 64 GB capacity, watch out. That will be a tipping point for a lot of ‘Classic’ users to switch to the Touch as their next iPod.

I agree with the author that ATT may be concerned. Network capacity is finite and thus costs money. If it didn’t, ATT wouldn’t have bid several billion $ in the recent 700 mhz auction. Given that ATT must share a portion of service revenue with Apple but not with Blackberry, the 10x network cost could be troublesome.

3G carriers in Europe have loads of spare bandwidth, which they don’t know how to push onto the customers. Let Apple release the 3G iPhone in Europe only and leave the EDGE iPhone in the US only if the local carriers don’t have 3G.

Let’s not get on Philip’s case for spotlighting evidence that Wu is an idiot. The headline clearly says “Analyst:” … claims the iPhone is a bandwidth hog. What is clear is that iPhone users actually USE the capabilities delivered the phone and ATT’s service. Wow. Complaining about ease of use that invokes more use, is like grouching that Star Wars was a lousy movie because you had to stand in line for an hour to see it.

Using more network resources, that would otherwise sit idle, is not a flaw. My iPhone saves me at least two gallons of gas a week, and the little electrons don’t wear out moving through the chips.

If AT&T can’t handle their subscribers downloading 100MB+ each month they should re-think their network structure. I find it hard to believe that they are not profitable with the extremely high data rates they charge as compared to other broadband (dialup in the case of EDGE) options. Even the $20/month is high for 100MB of data use.

- and once again, NO mention is made of the Ipod Touch, the magnetic attraction that device has for John Q Public, and the much larger profit per sale it represents over its tiny bretheren.

As a non-iPhone data customer of AT&T I have been wondering when someone was going to figure this out. Throughput on the EDGE network dropped significantly within a week of the iPhone’s release, forcing me to upgrade to HSDPA. They can put off the 3G iPhone as long as possible, as far as I’m concerned…

Chicken Little Meet Mr Wu!   The guy is a real Nervous Nellie! Anything else that could go wrong, Wu? ATT is not complaining. They’re very pleased with Apple’s traffic, believe me!

Fear and doubt brought to you by shorts inc!

Woe unto Wu   Wu messed up and now he’s on a tirade. And you’re helping with the FUD bath to no avail.

Your headline says that the iPhone is a bandwidth hog, yet your comments state that it is iPhone users that are bandwidth hogs. There’s a big difference.

Perhaps you might want to revise your headline to be aligned with the content of your article.

Would this not mean that the iphone is easier to use compared to the blackberry? Otherwise one would assume that blackberry would use the same amount of bandwidth?

I don’t know Mr. Wu but he seems to get a little bit more press than he deserves. I understand the need to be balanced and I certainly don’t want any cheerleaders as analysts. That said, Mr. Wu’s spin that carriers are upset because iPhones are bandwith hogs is a red herring. The increased bandwith aka utilization of resources is more than offset by increased revenue to AT & T. I don’t recall gross margins being a big point of contention in AT & Ts earings report.

Apple shipped 51% more Macs this quarter than they did last year.

Apple increased revenue by 43% this quarter vs the same period last year.

And all of this in a recessionary environment and he’s writing reports crying about margins and bandwith?

Having spent the past four months highlighting comments of sell-side-aligned “analysts” it’s entirely predictable that your column on Apple’s just-reported quarter would showcase the screed of Tony Wu. Doesn’t apparently matter to you that his calls on Apple have proven quite wrong. There you–and he– go again.

OR you could say that the iphone is 10x better at surfing the web than the blackberry.

“Won’t be as much of an issue” with 3G? In fact, it will get worse! The 3G iPhone experience will encourage its users to consume even more high-bandwidth content. This will put a very significant strain on the backhaul networks that connect the cell sites to the carrier’s core network. And it will certainly strain the 3G radio access network, which work best when only a few users are making network demands at any one time. These networks are all designed for sparse use, which is what the carriers count on from the seldom-used media & browsing features of other smart phones. A heavy bandwidth user is always a cost burden on the carrier, whether 2G, 2.5G, or 3G.

I suspect price plans will simply change for iPhone users and future devices that really entice users to surf.

well, to have the new 3g phone in june 2008 or july is not a big problem;I don’t see why it is a concern at all..