Company says that the offer of iLife, iWork and Mavericks for free to customers will come at near-term cost in margins. October 28, 2013 2:48 PM PDT Turns out that free comes at a cost. Last week, Apple announced that it planned to make iLife, iWork, and Mavericks free. "We are turning the industry on its ear," CEO Tim Cook said. But in the conference call following the release of the company's fiscal fourth quarter, Apple said that the company will need to defer a larger portion of sales from devices, or about $900 million in revenue. The company has been deferring revenue on many existing products, including iOS devices and Macs as part of standard upgrades, but that the addition meant deeper cuts into that margin as part of the new plans. "So we are now making iPhoto, i Movie, pages numbers and the notes available with free downloads to customers who purchased new iOS devices and we are also making maverick in future -- free to our Mac customers," said CFO Peter Oppenheimer. "As a result of these additional rights and features, we are deferring a greater portion of sales of each iOS device... we anticipate that the additional deferral per device sold coupled with our sequentially greater unit volume expectations of the December quarter will result in about a $900 million sequentially increase in the net amount of revenue deferred for software upgrade rights in non- software services." Oppenheimer added that by device that works out to about $15 to $20 per iOS device, and from $20 to $40 on Macs as part of the new plans. He said that goes straight through to profits margins.
Company says that the offer of iLife, iWork and Mavericks for free to customers will come at near-term cost in margins.
Turns out that free comes at a cost.
Last week, Apple announced that it planned to make iLife, iWork, and Mavericks free. "We are turning the industry on its ear," CEO Tim Cook said.
But in the conference call following the release of the company's fiscal fourth quarter, Apple said that the company will need to defer a larger portion of sales from devices, or about $900 million in revenue.
The company has been deferring revenue on many existing products, including iOS devices and Macs as part of standard upgrades, but that the addition meant deeper cuts into that margin as part of the new plans.
"So we are now making iPhoto, i Movie, pages numbers and the notes available with free downloads to customers who purchased new iOS devices and we are also making maverick in future -- free to our Mac customers," said CFO Peter Oppenheimer. "As a result of these additional rights and features, we are deferring a greater portion of sales of each iOS device... we anticipate that the additional deferral per device sold coupled with our sequentially greater unit volume expectations of the December quarter will result in about a $900 million sequentially increase in the net amount of revenue deferred for software upgrade rights in non- software services."
Oppenheimer added that by device that works out to about $15 to $20 per iOS device, and from $20 to $40 on Macs as part of the new plans. He said that goes straight through to profits margins.
