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APPLE

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John Lee

on 23 August 2015

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Transcript of APPLE

Apple was funded by Seven Job Steve Wozniak and Ronald Wayne on in 1976.
Incorporated in California in Jan.3, 1977 as Apple Computer, Inc.
Renamed on Jan. 11, 2007 as present name Apple Inc.
The second largest information technology company by revenue:
Company Background

Company Profile
1976: Steve Jobs, Steve Wozniak, Ronald Wayne Created Apple Computer Inc.
1977: Incorporated
1984: Macintosh Computer Introduced ($2,495)
iMac in 1998
1985: Jobs Fired but Rehired (NeXT)
2001: iPod and OS X introduced
2003: iTunes Launched (1 million songs in the1st Week)
2007: iPhone Launched
2010: iPad Launched
Current News


•Apple and Samsung will dismiss all patent suits outside the US
•Affects disputes in 8 countries: South Korea, Japan, Australia, the Netherlands, Germany, France, Italy, and the UK
•2011 Apple first sues Samsung
•Samsung sues for patent infringement
•Apple has won two jury verdict with damages of over $1 billion
•Samsung plans to appeal

Samsung and Apple Patent Suits
SWOT Analysis
Current Financial Position
Apple Vs. Google
IFRS
Carissa Davis
Kelle Huang
John Lee

Company Profile
APPLE
Strength
Horizontal & Vertical Integration -->Competitive Advantages
Horizontal: Provides Multiple Devices
Vertical: Provides Hardware, Software, Content, Services, and Retail
Provides Control Over User Experience --> Can't Replicate.
Command High Average Selling Price
Stable at ~$600
Indicate Product Superiority (85% Global Phone Profits in 4Q, 2013)
Significant Growth Rates and Cash Flows
Dominant Market Position
Cash From Operations: Grew 130% to $53,666 million (FY 2013)
Weakness
Product Gaps
Delay in Launching Phablet (Phone + Tablet)
No Different Price Points (Single Price Point)
Delay in Wearable Technology
High Dependence on iPhone & iPad
Account for 72.1% Revenue (FY2013)
Increase Business Risk
Opportunities
Growth in Enterprise Market
Popularity of iPhone & iPad to Corporate World
Same Platform For All Products
Emerging Markets
Product Popularity --> Attract New Markets
Asia (India & Indonesia)
Wearable Products and Apple TV
Further Integration
Apple TV: Internet Based Video
Threats
Premium Price Limit Emerging Markets
Emerging Market - Price Sensitive
Compete Against Lower Priced Android Products
Highly Competitive & Complex Market
Aggressive Competition & Challenges
Rapid Technology Advances
Oversee Market
China - Develop Linux-Based Processors
India - Restrictive Local Market Laws
GAAP
IFRS 15
Revenue Recognition (ASC 605-10-25-1)
Being Realized or Realizable
Realized
Products & Assets
Exchanged for Cash or Equivalents
Realizable
Received Related Assets
Readily Convertible to Cash or Equivalent
Being Earned
Not Recognized Until Earned
Deliver Goods or Service as Major Operations
Substantially Accomplish to be Entitled to Revenue
Revenue From Contracts with Customers (IFRS 15)
Effective January 1, 2017
Replaces IAS 18 (Revenues)
Improves Comparability of Revenues
Reduce Interpretive Guidance
Case-By-Case Situation
Emerging Revenue Recognition Issues
More Useful Information (Improved Disclosure Requirements)

What Apple Won't Tell You
Apple gets more than half its revenue from the iPhone
China Mobile partnership
Struggling to keep market share against Samsung, Google, and Amazon
Upgrade Fatigue
iPad Sales
Retail Stores
Loyalty
Apple's LT Debt Issuance

•In the third quarter of 2013, the Company issued $3.0 billion of floating-rate notes.

•Google’s notes issued all had fixed rates of 1.258%, 2.241%, and 3.734%


Accounting Difference between Apple and Google

Google includes stock-based compensation as R&D expense

•"We expect to continue to invest in building the employee and systems infrastructure needed to support the development of new products and services and to improve existing ones."

2011 2012 2013
Apple R&D Expenses $2.4 Billion $3.4 Billion $4.5 Billion
Google's R&D Expenses $5.2 Billion $6.8 Billion $8.0 Billion
Stock-Based Compensation Expense
$1.1 Billion $1.3 Billion $1.7 Billion
% of R & D
21% 19% 21%
Accounting Policies
Revenue Recognition

Apple recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable.

ASC 605-15-25-1
If an entity sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

The seller's price to the buyer is substantially fixed or determinable at the date of sale.
The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.
The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.
The buyer acquiring the product for resale has economic substance apart from that provided by the seller
The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
The amount of future returns can be reasonably estimated

Warranty Cost:

Apple provides for the estimated cost of warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost-per-claim, and knowledge of specific product failures that are outside of the Company’s typical experience.

ASC 460-10-25-5
Because of the uncertainty surrounding claims that may be made under warranties, warranty obligations fall within the definition of a contingency. Losses from warranty obligations shall be accrued when the following conditions are met:
a. It must be probable that one or more future events will occur confirming the fact of the loss.
b. The amount of loss can be reasonably estimated.

Company Product History
1984: Apple introduced Macintosh Computer ($2,495)
1985: Steve Jobs Fired; Subsequently Rehired (NeXT)
1998: iMac Introduced
2001: iPod Introduced; OS X
2003: iTunes Launched (One Million Songs in First Week)
2007: iPhone Launched (iPhone 3G in 2008)
2010: iPad Introduced
Share Prices
Current Financial Condition
Sales date
Current Financial Condition
Gross Margin
Current Financial Condition
Net Income and Earnings per Share
Current Financial Condition
Ratios
Current Financial Condition
Current IFRS
Previous Version Difficult to Understand & Compare Revenue
Inconsistencies and Weaknesses (Revenue Standard)
Diversity In Practice --> Limited Guidance
Current Guidance Difficult to Apply (Complex Situation)
No Basis for Conclusion
Utilized Both IFRS & GAAP
Inadequate Disclosure Requirements
For Investors
Understand Company's Revenue
Judgements & Estimates Made to Recognize Revenue
Presented In Isolation & Without Explanation
IFRS 15 Steps
Step 1: Identify Contracts(s) With Customer
Step 2: Identify Performance Obligation in Contract
Step 3: Determine Transaction Price
Step 4: Allocate Transaction Price
Step 5: Recognize Revenue When Performance Obligation is Satisfied
Apple was founded by Steve Jobs, Steve Wozniak and Ronald Wayne in 1976.
Incorporated in California in Jan. 3, 1977 as Apple Computer, Inc.
Renamed on Jan. 11, 2007 to it's present name: Apple Inc.
The second largest information technology company by revenue:
Company Background
Retail stores
Online stores
Direct sales force
Third-party cellular network carriers
Wholesalers
Retailer and value-added resellers
Distribution
Americas (37%): North and South America.
Europe (22%): European countries, India, Middle East and Africa.
Greater China (15): China, Hong Kong, and Taiwan.
Japan (8%)
Other Asia Pacific (7%): Australia and other Asian countries.

Segment
Difference Between GAAP & IFRS
Software Revenue Recognition
GAAP: Vendor-Specific Objective Evidence (VSOE) of Fair Value
IFRS: No Equivalent Requirement --> Broader Acceptance
Timing of Revenue Recognition
GAAP: Fixed or Determinable Pricing Criterion
Contingent Amount Not Recorded as Revenue Until Resolved
IFRS: Probability That Economic Benefit --> Entity
Revenue & Cost Measured Reliably
Includes Contingent Revenues
Earlier Recognition of Revenue
Service Transactions
GAAP: Prohibit Use of Percentage-of-Completion Method
Can Use Proportional-Performance Model
IFRS: Requires Use of Percentage-of-Completion Method
Sale of Goods
GAAP: Delivery Occurance
Fixed Fees
Collectibilty Assured
IFRS: Ownership Transferred (Risk & Rewards)
Buyer has Control
Revenue Reliably Measurable --> Benefit Company
Apple's Practice
Software (Multi-Element Arrangement)
Allocate Revenue Based on Selling Price
Utilized VSOE Method (Separate Different Software Elements)
Sale of Goods (GAAP)
Delivery Occurred
Evidence of Arrangement
Fixed Fees
Collectibility Reasonably Assured
Full transcript