Oh, about that 802.11n card in your C2D Mac | iLounge Backstage

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Oh, about that 802.11n card in your C2D Mac

From an Apple representative on the show floor: so if you have a Core 2 Duo Macintosh, you have a wireless card inside that’s capable of 802.11b, g, and - surprise, surprise - n. (Well, apparently n draft 2, which may or may not be like the final ratified standard come 2008, but will be supported in multiple Apple products.) And Apple’s going to distribute software to let you unlock the n standard in that card, which offers superior bandwidth for all sorts of data, especially and including high-bitrate video. Great news, right?

I’m not going to claim to understand this next part, which really just makes no sense to me at all, but the claim Apple’s making is that it _can’t_ give you the 802.11n-unlocking software for free. The reason: the Core 2 Duo Macs weren’t advertised as 802.11n-ready, and a little law called the Sarbanes-Oxley Act supposedly prohibits Apple from giving away an unadvertised new feature for one of its products. Hence, said the Apple rep, the company’s not distributing new _features_ in Software Update any more, just _bug fixes._ Because of Sarbanes-Oxley. If this is an accurate statement of Apple’s position, which as an attorney (but not one with any Sarbanes background) I find at least plausible, this is really crazy.

Except, of course, if it’s not so much the Act that’s stopping Apple, but Apple’s lack of desire to have to keep paperwork on software giveaways, some related concerns over obnoxious shareholders mounting needless lawsuits, or a misinterpretation of what’s really required by the law. As Wikipedia notes, it could as easily be the third option as either of the first; “some companies have initiated very time consuming and costly internal standards that are beyond what is actually required for SOX compliance.”

Conveniently, Apple can put a software updater in the box with one of its brand-new, 802.11n-ready, $179 AirPort Extreme Base Station.

Or the $299 Apple TV.

(Update: Amazingly, the disc doesn’t come with Apple TV - only AirPort Extreme.) And possibly other products, too. Oddly, it hasn’t updated its MacBook or MacBook Pro pages with “guess what’s in the box” updates, suggesting that you’ll need to buy more Apple hardware to get the n functionality out of your current C2D Mac model. For now. An interesting twist on a “free” feature people discovered some time ago, eh?

Update 2: Another Apple representative has added details on the Sarbanes situation: it’s about accounting. Because of the Act, the company believes that if it sells a product, then later adds a feature to that product, it can be held liable for improper accounting if it recognizes revenue from the product at the time of sale, given that it hasn’t finished delivering the product at that point. Ridiculous.

Update 3: Apple has confirmed today to CNet that it will be selling 802.11n unlock software for its Core 2 Duo Macs, and indeed cited accounting concerns as the reason for selling the feature rather than giving it away. If you’re not buying the new 802.11n AirPort Extreme, the good news is that the software will be available for $1.99 through its web site - a truly token price for an improvement of this caliber - and in light of the comments below, I’ll clarify two major points on this whole situation.

First, Apple could have opted not to include the 802.11n capabilities at all in these MacBooks, so a $1.99 unlock fee is much, much better than having to go out and buy a new dongle or ExpressCard at who knows what price. Second, my personal gripe was limited to a very specific issue: the concept of blaming accounting rules for preventing the addition of new functionality in a free upgrade to an existing product. In the context of a hugely complex laptop, especially one that shipped with the 802.11n chip inside, it would be very hard to imagine any logical outside agency as viewing this - a software upgrade to improve the existing chip’s performance - as something that should reasonably block recognition of full revenue from the laptop’s sale. Assuming that it’s acting solely with pure motives, any company of Apple’s size and importance - say nothing of its propensity for pleasantly surprising customers - should think very, very seriously about the impact of accepting such a limitation on its ability to innovate without charging customers. Giveaways are often critical to a company’s success, and who better to reward than your past loyal customers?

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Comments

1

Personally, I think it is because they do not want to deal with supporting the variety of Draft N router implementations out there.  I am sure it also does not hurt that this move will help sell Apple Airport Extreme Base Stations.  Using SOX as an excuse sounds like something a showfloor rep would say.

Posted by jsweet on January 11, 2007 at 6:51 AM (CST)

2

It’s pretty disgusting that no, after they’ve announced in public that they’re using the draft standard, you can’t buy, say, an iMac and a Macbook and use the higher-speed networking between them.

Posted by silas on January 11, 2007 at 11:25 AM (CST)

3

Obviously it’ll be in Leopard though. Perhaps even a selling point, though I would hope not.

Posted by Will on January 11, 2007 at 12:29 PM (CST)

4

You just said a bunch of things that went completely over my head.  My whole reaction to this article is, “Bwuh?”

Posted by alexarch in Dallas, TX on January 11, 2007 at 12:35 PM (CST)

5

It’ll be available for d/l within a week of APX or ATV being available.  Aren’t different manufactures n-based products incompatible with each other? Wouldn’t it creat a support nightmare for Apple if they all of the sudden said now everything is n-capable but little of it actually worked with dlink, linksys, netgear, etc?

Posted by motionMan on January 11, 2007 at 1:02 PM (CST)

6

Funny, this didn’t seem to be a problem when they released Boot Camp.

Posted by nilay patel on January 11, 2007 at 4:13 PM (CST)

7

When people received a Mac Mini with a better than advertised CPU Sarbanes-Oxley had been in effect for a while already. Didn’t stop Apple then…

My take:

Apple don’t want people coming back complaining about how their Mac’s ‘draft n’ (which they didn’t actually ‘buy’) doesn’t work with brand X’s ‘draft n’ router. That would work out to no added income, but still added support expenditure.

Bundling these drivers with the new Airport Extreme Base Station or Apple TV will at least offset these support costs. And the customer will have at least two matching Apple ‘draft n’ units that should work well together. Happiness all around…

Posted by aapl87 on January 11, 2007 at 7:28 PM (CST)

8

How on earth did that Smiley get in there.

It wasn’t me…

Posted by aapl87 on January 11, 2007 at 7:34 PM (CST)

9

“Funny, this didn’t seem to be a problem when they released Boot Camp.”

That’s because they didn’t release it, they’re beta testing it. There’s a difference. Boot Camp will officially be released as a part of Leopard.

Posted by Nobody on January 13, 2007 at 9:12 PM (CST)

10

I heard the same explanation during WWDC ‘06 from more than a couple of the presenters during the Q&A,  that SOX would prevent/complicate free feature additions via software updates.

Posted by sst on January 15, 2007 at 11:04 AM (CST)

11

This has nothing to do with what Apple “wants” - SOX has lead to many additional legalities to be considered, and actively prevents a great deal of efforts which would be beneficial to customers.

Ah, what a wonderful, litigious world we live in…

Posted by SomeOne on January 15, 2007 at 12:47 PM (CST)

12

So why can’t this be released as part of Leopard? What’s the difference between a driver and updated the firmware, like Boot Camp?

Posted by nilay patel on January 15, 2007 at 2:58 PM (CST)

13

Are Dell, HP, IBM and Lenovo doing the same as Apple?

Posted by Benton on January 15, 2007 at 3:29 PM (CST)

14

i have NEVER heard an explanation SO REDICULOUS from any software company as to charge a fee for an upgrade. If one follows that logic, apple would not be able to provide any new features and/or improvents in each subsequent OSX update. apple is slowly, earily, becoming more like microsoft….

Posted by palex on January 15, 2007 at 3:54 PM (CST)

15

just so you know, macrumors is reporting that the enabling software will be available in february for $4.99

Posted by jm on January 15, 2007 at 4:44 PM (CST)

16

Complete BS.  Any Apple representatives making such an assertion on the record will provide cause for a shareholder class-action lawsuit on the basis of Apple having improperly accounted for revenue arising from sales of the 5th-gen iPods prior to release of the firmware update which finished delivery of the product by adding the ability to play games (to pick one, recent, concrete example).

Posted by JohnS on January 15, 2007 at 5:08 PM (CST)

17

@nilay patel regarding boot camp, first off every version of boot camp is a beta so they are technically not enabling a new and unadvertised feature. I believe boot camp will be integrated into leapord.

Posted by Ben L on January 15, 2007 at 6:28 PM (CST)

18

aapl87   - Tee Mac Mini is not a relevant example because the revenue was not recognized until it was bought, at which time it already had the faster chip.

nilay patel - The enabler may very well be a part of Leopard. That would be fine since it’s being bought.

palex - You are not paying attention. Of COURSE Apple can provide new features in OX X upgrades. They are being paid for. The issue is realizing revenue for something _now_ that isn’t actually delivered until _later_.

JohnS - You have to BUY the video games from Apple. The “feature” to play the game is not complete without a game being purchased.

Everyone - What is the big deal here? You are essentially getting an upgraded wireless card for $5 (if the rumors are right) and are complaining about it? Jeez. Would you rather that Apple not have shipped the potential “n” capability in your Mac at all? You’d rather have to buy a whole new wireless card?

Posted by treestman on January 15, 2007 at 6:41 PM (CST)

19

In the original article, Jeremy wrote - “a little law called the Sarbanes-Oxley Act”.  What an understatement!  A few other posters also show severe lack of knowledge about this onerous act, commonly called SOX.  The law is a response to Enron, etc. and as usual for the gummint, instead of fixing things it makes things worse and has ridiculous unintended consequences.  It makes sense to me that $4.99 for updating OSX Tiger is one of these unintended consequences.

Posted by Don Wills on January 15, 2007 at 6:42 PM (CST)

20

Hey guys,

I do SOX auditing for a living and I couldn’t make up a plausible scenario where their pricing charge would be dictated by SOX.

The SOX legislation is about insuring that Apple’s financial reports are accurate..has nothing to do with pricing policies.

Posted by austin on January 15, 2007 at 6:53 PM (CST)

21

For someone who does SOX auditing, you have a poor understanding of the issue.  It’s about R-E-V-E-N-U-E R-E-C-O-G-N-I-T-I-O-N, which is a BIG part of financial reporting.  SOX frowns upon recognizing revenue for delivering unfinished or unimplemented software.  Oracle, IBM, and Microsoft live under the same restrictions.  Watch Microsoft start charging for dot revisions of Vista in the near future

Posted by Scott Evil on January 15, 2007 at 7:17 PM (CST)

22

A couple weeks ago, a Verizon rep told me he couldn’t upgrade me to Palm Treo 700p 3 months early due to Sarbox.  Sarbox seems to be the “in” thing to say at the moment.  When all else fails, blame Sarbox. 

PS - That little Apple option backdating thing?  You guessed it, Sarbox strikes again :)

Posted by Vic on January 15, 2007 at 7:18 PM (CST)

23

I have to commend Apple on this genius price-grab that comes with a side of advertising. Well, it could be the other way around, but essentially the same. It is obvious that Apple faces zero legal troubles with unlocking that technology for free, but the discussions and controversy that will spawn because of this will lead to even higher sales. They are able to do this as “sarbox” seems to be a catchphrase not yet in abundant mainstream use and the technology that it covers is state-of-the-art and desired by pretty much anyone who uses wireless networking.

If this was truly legal driven and not monetarily driven, the cost for the upgrade would be less than a dollar.

Posted by Jon on January 15, 2007 at 9:05 PM (CST)

24

Who gives a shit if Apple is going to charge $5 to upgrade your WiFi card? You guys act like it’s your right to receive the upgrade for free, as if Apple advertised it initially, never gave it to you, and now is trying to shaft you. $5 is a steal for a 802.11n draft 2 card.

Posted by Nobody on January 15, 2007 at 9:50 PM (CST)

25

I have been working in the software industry for the last 6 years in finance and accounting roles and I have a lot of experience around revenue recognition rules for publicly traded software companies.  What Apple is doing is common practice in the industry and is a pain for most product managers because it makes no sense from a customer’s perspective. 

There are very specific revenue recognition rules on delivering incomplete and/or promising future updates that provide new features and/or functionality to a product.  Based upon how Apple is charging for the “unlocking fee”, it confirms that they began shipping the newer Mac computers before they finalized 802.11n.  From a revenue recognition standpoint (remember, we live in a cash based world, but publicly traded companies live in an accrual-based accounting world), there are different ways to account for the decision to ship incomplete hardware to customers and then providing a finished product in the future. 

1)  Do not charge for 802.11n:  This is what everyone probably wanted to hear from Apple, “We are shipping 802.11n enabled hardware, but it will not be ready for X months.  Customers who purchase now will be able to enable the hardware with a software update when it becomes available.”  If Apple made this commitment to its customers, it would have to defer a portion of the revenue from each unit that ships with the 802.11n cards.  Sometimes this amount can be trivial, but based upon Apple’s decision to charge to unlock 802.11n, I would assume the amount was not trivial to them.  For example, if we assume that a brand new 802.11n wireless card would cost $100, an auditor would assume the value of providing 802.11n to the customer is worth ~$100.  Let’s say a computer costs $2,000, then the company would be able to recognize $1,900 now and then recognize the $100 once the feature has been delivered to the customer.  If this happens within the same quarter, it is not a big deal.  But if you cross a quarter or multiple quarters, it is can be a big deal.  In some EXTREME cases, the auditing firm may say, “Since the wireless card is an integral part of the computer, you’ll have to defer the entire $2,000 until you ship 802.11n.”  This is an extreme example, but in some cases, it does apply.  (Don’t rationalize it!  It’ll make your head spin…)

2)  Charge for 802.11n:  Do not get this confused with bug releases, patches, and other non-feature releases of a product.  There are rules that allow companies to “fix” their products if they are broken, such as security patches to fix critical flaws in your software, bugs, etc, without charging a fee.  It is assumed that the product should function and companies are allowed to fix them.  BUT, in Apple’s case, they are not providing a hot patch or bug fix, they are providing a new wireless standard that was not complete when you purchased it.  So to avoid revenue recognition hell (see above), Apple doesn’t announce that hardware has been shipping with 802.11n hardware and charges customers to activate it once the standards have been finalized.  This allows them to avoid deferring a large portion of revenue from their hardware sales, but really sucks for the customers. 

This probably sounds all crazy and you probably think I work for Apple (I don’t), but this applies to all software companies…  Ever wonder why there are certain windows of time that qualify for free upgrades?  Why companies have very odd cross product upgrade paths???  Hahaha!  Welcome to the world of publicly traded companies and public accounting!

Posted by Steve on January 15, 2007 at 10:37 PM (CST)

26

@Steve - Your explanation is quite clear and helpful, but to me there is still one thing missing.  Why $4.99 specifically?  Why not $1?  Does this mean that this feature was valuated at $4.99 and this would have been the amount of revenue they would have had to defer to a later quarter?  If so, it seems to negate the impact of your explanation in #1.

Posted by Eric on January 16, 2007 at 8:08 AM (CST)

27

How does this relate to what Sony does with the PSP?  Every few months a new firmware comes out that adds a new feature.  Web browsing, RSS feeds, PS3 compatibility, Location free player, PS1 Emulation!  Most of those were not announced as coming later on, they were all surprises.  It looks like the way everything is worded, Apple is safe. How can we buy something unannounced? We can’t. So no income for Apple on it=no legal woes.

Posted by Jason on January 16, 2007 at 8:34 AM (CST)

28

From what i can tell from Steves answer is this

Incomplete router is shipped, and latter a finalized version is unlock and also shipped.

With Sony.
No incomplete feature was shipped. later a finalized product was shipped.

Posted by MySchizoBuddy on January 16, 2007 at 9:17 AM (CST)

29

Well, also Sony is not an American company and therefore not bound by American laws.

Posted by Lyle Turner on January 16, 2007 at 9:47 AM (CST)

30

Lyle, mistake. Any company (whatever their country of origin) traded in the USA has to submit itself to SOX.

Sony is traded in New York under the ticker SNE… which put them under SOX.

A SOX consultant.

Posted by Bixente on January 16, 2007 at 10:32 AM (CST)

31

Another example, the Wii (I’m pretty sure publicly traded).  How does Nintendo account for the unfinished features of the channels to come?

However, in both cases, it is possible that the companies are taking option 1 from Steve’s comment. 

@Steve - My question for option 1 is how do you account for unforeseen features?  You can’t possibly account for every way a system can be used.  Is a company then restricted to only be able to release the predicted features?

Posted by dg13 on January 16, 2007 at 12:19 PM (CST)

32

The difference is that Apple sold a fully functional product that happens to be capable of more then it was originally marketed as, this is completely normal, and many comsumer electronics are released ‘dumbed down’, but software upgradable.

SarBanes-Oxley doesn’t apply in any way.  N o m a t t e r h o w m a n y spaces you use.  Now, if they are trying to backdate the revenue (“Hey, now we have ‘N’, those systems we already sold last year were really worth x+$100”) this would be a problem.

This is what happens when their first string lawyers are bogged down with silly stuff like “iPhone” name grabbing and trying to fix Job’s backdated options problems.

Either that or they are trying to gather grass roots support against Sarbanes-Oxley.  In case you were falling for it, don’t.  Sarbanes-Oxley might be a pain for companies to implement now, but it is because companies were running wild and playing financial games with the investor’s money for years and now have to go back to GAAP and accounting 101, not because the law is bad.

How to fix this?  Call Apple to order the “upgrade”.  Every call that involves a person on the other end will cost them more then $5.

Posted by Dan on January 16, 2007 at 12:46 PM (CST)

33

Has Apple said whether the enabler would be included in Leopard? I certainly hope so. If not, then I’m not sure you can blame it on SOX.

Posted by Ray Zimmerman on January 16, 2007 at 1:59 PM (CST)

34

Maybe apple should stop spending millions making all these retarded commericals bashing PCs and they wouldn’t have to charge their loyal customers for updates to their buggy/imcomplete products.

“pc- the rest of me is in the other box”
“mac- i can start work today, after i open my box, and pay for all these software updates !”

Posted by james on January 16, 2007 at 5:36 PM (CST)

35

Can they sell it with a $5 itunes gift card?

Posted by Lou on January 16, 2007 at 7:38 PM (CST)

36

I have a Linksys draft-n router and draft-n pci adapter for my windows desktop. My windows 802.11g laptop achieves much slower downloads speeds, as expected.
When we added my wife’s new macbook pro this weekend it achieved the same download speeds as my draft-n pci adapter, although it reported being connected at 54K like my windows laptop.
It doesn’t seem to me like it needs an upgrade!

Posted by jim on January 16, 2007 at 7:47 PM (CST)

37

I meant to say the macbook pro reported being connected at 54M (not 54K). My desktop with draft-n pci adapter reports being connected at 270M routinely, but gets actual downloads at the same speed as the macbook pro did.

Posted by jim on January 16, 2007 at 8:19 PM (CST)

38

Steve,

That makes me wonder.

What about updates to software and operating systems? Microsoft added a brand-new feature - the Windows Firewall - to Service Pack 2, which was a free update. How to they account for the R&D and manpower that went into that update?

What about BIOS updates from companies like Dell? Those are offered for free and sometimes provide brand-new support for newer processors.

Should Dell charge us for those updates, since it’s introducing hardware functionality that previously did not exist? Should Intel or AMD be charging us?

While your argument seems educated, it also seems flawed. There are too many situations where a free update has provided new functionality to something for me to agree that Apple ISN’T trying to capitalize on its tiny market share, or that Apple DIDN’T cripple those “Airport Extreme” cards on purpose. I would highly doubt that the $5 charge is because of SOx. It seems much more likely that Apple’s figured out a way to (a)make a quick buck on thousands of customers, and (b)have a ready-made legalese excuse for it.

Posted by shifuimam on January 16, 2007 at 10:01 PM (CST)

39

Microsoft ships unannounced and unknown even to them remote administration features with almost each new software product. And I have not heard about any action from shareholders about it.

Posted by fx on January 16, 2007 at 10:50 PM (CST)

40

As someone who worked for a software company until recently who had to deal with the thick idiocy of SOX, let’s give Apple a break here. Yes, they are probably being completely stupid about their liability with revenue recognition with regards to SOX, but let’s keep in mind that SOX is really what’s at fault here, not Apple. Apple is just being overly cautious about a law that damn few people know much about, and which is could easily come back to bite them if the wrong propeller-head decided to get medieval on them. The law is unclear, so it’s only prudent that companies with many millions of dollars at risk err on the side of safety.

And ... at the end of the day, what is “N” gonna do for you, really? And if you think it will change your life so much, is $4.99 too much to spend for something you didn’t know you had in the first place? Would you have spent $4.99 to get it otherwise?  If not: don’t. If so: be happy it’s so cheap, less than 5 bucks.

—Andy M.

Posted by Andy Mazal on January 17, 2007 at 2:09 AM (CST)

41

How is this “unadvertized” all C2D macs is known too have that Broadcom chip, and if you look at the specs it is n. There is no “secret”. This is like saying that all the functionality of the C2D processor is “unadvertized”(SSE3, virtualization etc.).

Posted by Dan P on January 17, 2007 at 6:13 AM (CST)

42

Surely its the fact that Apple supplied a part finished unadvertised product when it initially shipped, software/firmware updates don’t count becuase they are new and therefore revenue gained previously would not have to be deferred. If for instance, sony announced the PSP had a camera built in that just needs a software update, thats a different matter.

Posted by Rich on January 17, 2007 at 8:25 AM (CST)

43

Not only that, but Apple themselves have released Airport software/drive updates to support new wireless encryption standards, like 128-bit WEP, WPA, and WPA 2. If they decide to add PEAP support, will they have to charge another $5 to anyone who wants to connect to their company’s PEAP wireless network with their MacBook?

The product that Apple supplied wasn’t partially finished. It was a finished, complete, functional product. That they didn’t advertise it as being n-compatible is not synonymous with adding a new feature. The feature was there - Apple intentionally crippled it.

Posted by shifuimam on January 17, 2007 at 8:54 AM (CST)

44

I work with SOX and Apple’s explanation sounds legit. The timing of the revenue declaration is key to accurate accounting.

All of these companies (including ours) are still trying to figure out SOX and so are handling each situation as it comes upon it. As a potential issue comes to light, they are going to play it safe. What was acceptable last year may be considered unacceptable under today’s interpretation of SOX. This is why you’re seeing all the “Well, X company doesn’t do this and Apple didn’t do this last month” kind of arguments.

As has been mentioned previously, SOX is a result of “the gummint” NOT doing its job of providing oversight in these situations and allowing the siphoning of stockholder monies by criminals in the board room. Think “the gummint” is overstepping with SOX? Ask any one of the thousands of families whose livelihoods and retirements were flushed down Ken Lay’s $14k gold-plated toilet seat (actually, it was a $14k golden shower curtain), among other examples of his personal avarice, enabled by Enron’s fraudulent accounting practices. Throw WorldCom, Adelphia, etc., into the mix and you get the idea.

As is the case in most every society, the good guys have to put in a little extra work to make up for the deficiencies of the few bad apples (small “a” there - no subliminal message intended).

$4.99 is a MORE THAN REASONABLE PRICE to pay for this functionality. I’m sure there are many folks who would pay $49.99 (instead of buying a base station) for this added functionality. This is, in essence, a freebee from Apple, with a $5 tax to pay for the Laissez-faire approach to regulation “the gummint” took prior to Enron, et al.

Posted by John Doppler on January 17, 2007 at 9:20 AM (CST)

45

This is all accounting haze to squeeze out more greenbacks from the customer (to pay for blossoming accounting and legal administrations). This is not different from any other software which uses the hardware of your computer and adds new abilities to it which you do everytime you install somthing new to gain that function. HCR

Posted by HCR on January 17, 2007 at 11:38 AM (CST)

46

Andy M.

I don’t think you really understand what SOX is about.  Software / IT staff just need to chill about this whole entire thing.

Posted by Taylor on January 17, 2007 at 11:42 AM (CST)

47

Okay, 5 bucks may seem immaterial.

But the theory is right.  Here’s an example that’s a bit larger.

I sell a new furnace, install it, and promise to come back in one year for a one year check up and tune up, all for a lump sum price of $5,000.

I don’t recognize the full $5,000 as revenue up front, just a major portion of it.  I still have to deliver the one year check up and tune up.  When that is delivered I recognize the rest of the revenue.

Posted by Roland on January 17, 2007 at 11:54 AM (CST)

48

I’m tired of companies blaming any negative news of Sarbanes Oxley.  The $5 charge allows Apple to recognize the revenue on the sale of the product upfront.  By allocating a price to the unlock of “N” it allows them separate the 2 pieces of revenue.  Otherwise they would have to defer the entire amount of revenue.

This is not a Sarbanes Oxley thing rather this is a financial accounting thing that would be enforced regardless if Sarbanes Oxley even existed.

For those who are going to question my knowledge here is a reference to plenty of accounting literature that discusses the issue. 

Please note that Sarbanes Oxley is not discussed in the article.

SOX was created to ensure that companies have internal controls to create accurate financial statements, ensure there is a reasonable control environment…  There have never been / nor ever will be laws created for financial accounting due to SOX.

http://www.nysscpa.org/cpajournal/2005/405/essentials/p38.htm

Posted by JD on January 17, 2007 at 12:21 PM (CST)

49

If you really want to talk about an issue how about executive compensation?

SOX might cost a billion dollar company $10 million, but the CEO’s for Pfizer and Home Depot just walked away with severance packages of $200 million.  That is 20 years worth of Sarbanes Oxley costs.

Does Steve Jobs deserve options to buy 10 million Apple shares and a Gulfstream V jet in January, 2000.

I don’t care if I get flamed since this is an apple board but people really have things backwards.  Executives and Companies hate SOX as well they should since they can’t get away with as much, so they send out announcements such as this one and people actually listen and believe.

Posted by JD on January 17, 2007 at 12:30 PM (CST)

50

So when I got the update to my 5G iPod which enabled new features… why didn’t I have to pay for it?

This is awful logic.

Posted by Alex on January 17, 2007 at 12:46 PM (CST)

51

Alex - If you think accounting is black and white you are wrong.  I have seen time and time again where a new accounting firm is hired and they will make a company change their accounting methods from what was acceptable the prior year.

Please remember that there is a phrase in SOP 97-2 “In an arrangement that includes software that is more than incidental to the products or services as a whole, software and software-related elements are included within the scope of SOP 97-2.”

Was your update to your 5G iPod more than “incidental to the product as a whole”?

Not every little update is going to be considered incidental to the product as a whole.

Posted by JD on January 17, 2007 at 1:07 PM (CST)

52

I have less of a problem with them charging for this feature than I do for them charging for QT Pro.  But, that’s a different argument.

However, it seems that if the sole problem was one of exchange of consideration (i.e., the consumer must buy something to get rid of Apple’s potential liability due to SarBox), then why not make the cost be $.01 and have it charged the same place that your iTunes stuff gets charged?

Posted by cleeland on January 17, 2007 at 5:09 PM (CST)

53

Ok Let me get this straight. Apple is charging $4.99 for the upgraded software to use the N standard for 802.11. I spent $7.42 on lunch today. If you are whining about $4.99 for 5x the speed of wireless, with the appropriate router, then you are a cheap SOB of epic perportions.
Crying about $5 is just stupid. If you buy the apple router then you get the upgrade for free anyway, WHICH YOU NEED TO USE N IN THE FIRST PLACE. If you don’t use N then you dont pay for it.

The amount of time I just spent writing this letter is more then the cost of the upgrade. Get the upgrade or not and get on with your life.

Posted by George on January 18, 2007 at 4:20 PM (CST)

54

I agree.  The cost of this update is extremely fair not worth all the hub bub..  I just have to bring up XP SP2 though. Didn’t it contain lots of new “free” features?

Posted by Paul Style on January 18, 2007 at 10:22 PM (CST)

55

Sorry for not responding earlier.  I didn’t realize people were replying to my earlier post. 

There is one key point that should be brought up with regard to new features and enhancements with regard to software and hardware.  Free software and hardware enhancements are accounted differently than paid features and enhancements.  For Windows and the PSP, no one pays for the new features (Firewall and new versions of the firmware) and they are available for everyone who purchased the software/hardware.  I’m not as familiar with revenue recognition treatment for embedded software updates (I.E. PSP Firmware), but I would assume since Sony does not limit who can download the firmware, they are free to improve it as needed.  Someone could argue, “The PSP is still the same piece of hardware, we’re just allowing the customer to do something new with it.”  I would have to check with someone who works in the hardware industry to confirm.

As for how much you can charge a customer to unlock the feature, it is unclear as to how you would price the upgrade, but it appears the product management team tried to determine a price that was fair and reasonable and a price the auditors could agree to (Yes.  Some pricing decisions are determined by auditors.) 

But to give people some context of how serious this issue was, let’s take Apple most recent 8Q as an example.  Apple reported that it shipped 1.6M CPUs (desktops and portables) in their last fiscal quarter.  Let’s assume all of those units shipped with the “hidden” 802.11n card in the machine.  If Apple said they wanted to give away the feature for free and communicate that the charge will be enabled in the future, they wouldn’t be able to charge some arbitrary price like $5.  What typically happens is that the auditors will do some research and determine what the fair market value of that hardware and/or feature would cost.  I’m assuming that an 802.11n card would cost more than a 802.11g card and if they were a smart auditor, they would look at how much 802.11g cards cost when they were introduced, not the current price on amazon or ebay.  Let’s just assume that a new 802.11n card will be priced around $100.  The auditors would then say, for every computer that you shipped with 802.11n, we’re going to reserve/carve out $100 for each unit.  Since they shipped 1.6M units, this would translate into $106M of revenue that would not be recognized as revenue until Apple provides the software enablement for 802.11n.  This may not sound like a big deal, but if you consider $106M would’ve reduced their operating margin by 10%, which in turn would’ve impacted EPS and potentially caused them to miss their EPS target, it becomes a BIG deal to a company. 

Like I said before, accounting rules for publicly traded companies make absolutely no sense for non-accounting people.  Based upon the price that Apple is charging its customers, I would assume that it was the best compromise the product management team came up with their auditors.  I’ve been on the front-side of many conversations on feature slips in the development cycle and the possibility of incorporating features after the product ships, and it is tough to tell a product management team “no” when the people who take the brunt are the customers.  Just remember, publicly traded companies exist in a 90 day window and when things move between these 90 day windows, you have to start charging $4.99 to unlock something that you “paid” for…  Just be glad that it is only a few dollars and not the full value of the product…

Posted by Steve on January 18, 2007 at 10:52 PM (CST)

56

One important point I forgot to list in my original post that people seem to have overlooked is this.  Apple could have chosen to not ship 802.11n enabled cards at all until they finalized the software and standard.  From a revenue recognition standpoint, this is the cleanest way to deal with the problem of an incomplete product/feature.  In many ways, you have to commend Apple that they even bothered to go through the trouble to ship an incomplete wireless card and go through all of this revenue recognition nonsense so that the customers could utilize it once the standard becomes finalized…  Obviously having the customer pay for something they feel they already own is not the greatest experience for the customer.  But is it worse than buying your computer in December and having Apple announce that computer shipped after Macworld will have the new cards?  Seems like a small price to pay…  I think we’ve all made some poor music purchases on the itunes store that total more than the cost of the software…  I still regret letting my wife buy “Grandma Got Run Over by a Reindeer”…  the joys of marriage…

Posted by Steve on January 18, 2007 at 11:53 PM (CST)

57

The software firm I used to work for had lots of “features” that cost a substantial fee (around $1,000 per module) to unlock if the clients wished to use those optional features later.

$2 USD to unlock an optional Apple-based feature? Natch. Apple, bring it on!

Posted by Robert Pritchett on January 19, 2007 at 10:18 AM (CST)

58

The issue should not eb the cost, but the fact that Apple is trying to place the blame on SOX.  Revenue Recongition or not this is a weak arguement on why they decided to charge and the comments about the whining over a couple dollars also misses the point.  If Apple just decided to charge for the feature without blaming SOX it would not be the same issue.  ~$5 is not a bad price, but blaming SOX is irresponsible, since if they did somehow lock themselves into an idiotic revenue rec policy that is Apple’s controls dictating that - not SOX.  SOX is management’s controls not the PCAOB, SEC or even the external auditor’s control, but management’s controls.  Now if management agreed to do some stupid controls that is Apple’s fault for agreeing to do them not the SOX act at all.

Posted by Amused on January 23, 2007 at 1:25 PM (CST)

59

if the point is to charge something to be legally covered, then why not charge just $0.01?

Posted by Gene on January 23, 2007 at 8:34 PM (CST)

60

They need to recoup the expense of running credit cards, setting up servers, paying accountants to verify that they’re charging for this, and other stupid paper transfers. The money is probably all tied up in just the management of making this possible in the first place.

Posted by Wilder_K_Wight on April 29, 2007 at 2:14 PM (CDT)

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