updated 12:50 pm EDT, Thu September 17, 2009
Firm backs importance to investors
A change in accounting rules that will favor Apple is based on the recognition of "hybrid" products, says Kaufman Bros. analyst Shaw Wu. The analyst notes that a number of companies are now dependent on vertically-integrated business models, in terms of hardware, software and services; Apple for instance not only produces the iPhone, it develops the iPhone OS, and runs the iTunes Store. Under the current incarnation of rule SOP 97-2, hybrid products must have deferred revenue recognition.
The tentative change to SOP 97-2 means that Apple should be able to recognize point-of-sale revenues for both the iPhone and the Apple TV, along with an estimated value for software and service over the life of the hardware.
Like other analysts, Wu observes that the shift should finally present a more accurate picture of Apple revenue and EPS. Professional analysts are said to be unlikely to change their opinions much, however, as they already use free cash flow to judge Apple shares. In this regard the altered rules are more likely to help "mainstream" investors, who instead rely on EPS, a factor greatly influenced by deferred revenue accounting.
Wu is calling for a price target of $184 on Apple stock, and a forecasted $6.60 in EPS during calendar 2010. Using free cash flow, Wu expects $10 per share.