Apple, Palm and other companies that make products that combine both hardware and software could see a boost in their revenue and perhaps their earnings following changes made by accounting rule makers.
The changes, made by the Financial Accounting Standards Board, will now allow companies to realize more revenue up front from products like Apple's iPhone and the Palm Pre. Currently, companies have to defer revenue from sales of such products over a longer period of time, usually two years. The companies that have backed the change argue that the current system does not accurately reflect how such devices are used, and the changes will allow their reported results to better reflect the actual state of their business.
Both Apple and Palm stand to benefit from the changes. The two companies have taken care to note in their earnings statements that they use subscription accounting. The companies say that because they provide "unspecified features and additional software products" for users of products such as the iPhone, Apple TV or the Palm Pre in the future free of charge, they have to recognize revenue from the products over their lifecycle and not at the time of sale.
Other companies that have pushed for the changes include Cisco, Dell, HP, IBM and Xerox. The new rule will go into effect in 2011, but companies can implement it earlier.
For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
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