![](http://investorshub.advfn.com/images/default_ih_profile2_4848.jpg?cb=0)
Monday, June 26, 2006 3:20:55 AM
June 26, 2006 00:01:00 (ET)
SAN DIEGO (MarketWatch) - If you missed my column in the Weekend Wall Street Journal: From the "for what it's worth" file: For all of its terrific marketing, superb products and highflying stock, there's another side to the revival of Apple Computer(AAPL, Trade) that gets less airplay: Its lack of a certain type of disclosure.
With the exception of analyst Robert Renck, nobody seems to care. Renck, of the private research firm R. L. Renck & Co., may be the only analyst to rate Apple a "sell." Among the reasons: the sparse way in which it breaks out operating results of its segments. Renck, who prides himself on knowing his way around the dark alleys of financial statements, has a knack for questioning the status quo of Wall Street darlings. His earlier targets include McDonald's(MCD, Trade), before investors realized how stale it had become, and CUC International, before it was acquired by - and became a major headache for - Cendant(CD, Trade).
While not predicting a similar fate for Apple, Renck believes the company's skimpy segment disclosure makes it a "have-faith, trust me" stock. As a result, he has warned his clients, Wall Street's bullish forecasts aren't without risk for this simple reason: Analysts can't get a true and complete picture of how Apple makes its money. "I don't think Apple is doing anything wrong other than their penchant for secrecy," he says.
Like much in accounting, rules for the way a company breaks out its different businesses in Securities and Exchange Commission filings are subject to interpretation and considerable debate. Apple has chosen to report segment results pretty much the way it always has: by breaking out operating profits by the regions in which it operates, not products, for which it only gives sales; it also breaks out the operating profits for its retail stores. That may have been fine when most of Apple's sales came from Macintosh computers, making a separate breakout for analytical purposes irrelevant, Renck says. But computer sales now trail sales of iPods, which as of the first six months of Apple's fiscal year accounted for 46% of total revenue. See Herb's blog
Furthermore, in its SEC filings the company in recent years has changed its description to include "music products and services" as a separate part of its business organization. Renck, in one of his reports, is more direct: "Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation and the consumer electronics industry."
Accounting standards, he adds, require that segments generating more than 10% of a company's revenue be broken out by several metrics, including sales, profit and assets. The iPod first passed that threshold in early 2004. Commenting on the issue, in a statement on current accounting and disclosure issues, the SEC staff has said it believes segment information should be broken out unless "separate reporting of segment information will not add significantly to an investor's understanding of an enterprise [because] its operating segments have characteristics so similar that they can be expected to have essentially the same future prospects." Renck goes so far as to say he believes Apple should do a separate breakout for computers, iPods, music-related products, peripherals and software and service. "Their business has changed and they should be doing it differently," he says. "Transparency is what everyone wants, and they don't want to be transparent."
Apple declined to explain why it doesn't provide more financial information on different business segments, saying it doesn't comment on analyst reports. Instead, it sent me a copy of what it believes is a critical passage from its 10-K, which goes into detail about how it "manages its business primarily on a geographic basis."
But even the company's fans appear to be growing impatient with Apple's hesitancy to disclose more. On a recent earnings conference call, several analysts specifically asked about the iPod's gross margin. Finance Chief Peter Oppenheimer responded to one, saying, "... Our competitors would just love to know what our specific gross margins are ... and we just don't want to help them."
While that is understandable, Renck doesn't believe it is necessarily right. "Without clarity," he argues, "analysts can't forecast with any degree, other than to rely on what management says."
That may be fine when business is booming; it is foolhardy, when it is not. And it won't always be for Apple.
Recent AAPL News
- Apple Joins OpenAI Board, Logitech President Opts Out of Reelection, and More News • IH Market News • 07/03/2024 10:59:39 AM
- U.S. Stocks Close Higher; Nasdaq Outperforms • IH Market News • 07/01/2024 09:10:17 PM
- Dow Dips, Nasdaq Gains, Oil Prices Rise • IH Market News • 06/26/2024 11:00:03 AM
- SolarEdge Stock Falls 13%, Wegovy Approved in China, Grail Nasdaq Debut, Apple Rejects Meta Chatbot • IH Market News • 06/25/2024 10:36:11 AM
- UPS Divests Coyote Logistics in $1.025 Billion Deal with RXO, Under Armour Agrees to $434 million Settlement, and More News • IH Market News • 06/24/2024 11:00:20 AM
- Trump Media Resells Stocks and Warrants; KB Home Exceeds Q2 Expectations, and More News • IH Market News • 06/20/2024 10:55:11 AM
- Apple The Exchange TRX to welcome its first customers this Saturday, June 22, in Kuala Lumpur • Business Wire • 06/20/2024 02:00:00 AM
- Nvidia Overtakes Microsoft To Become World’s Most Valuable Company • IH Market News • 06/19/2024 09:32:08 AM
- Fisker Files for Bankruptcy, Chegg Stocks Rise on 23% Workforce Reduction, and More • IH Market News • 06/18/2024 11:02:13 AM
- Goldman Sachs Raises S&P 500 Forecast for 2024; Disney Secures Deadpool & Wolverine in Chinese Cinemas, and More • IH Market News • 06/17/2024 10:49:12 AM
- Adobe Soars 15% Pre-Market; Visa and Mastercard Encounter Hurdles in $30 Billion Agreement, and More • IH Market News • 06/14/2024 11:21:47 AM
- Tesla Surges 5% in Pre-Market; Virgin Galactic Drops 9% Following Reverse Stock Split, and More News • IH Market News • 06/13/2024 11:24:25 AM
- Tamer Than Expected Inflation Data May Spark Early Rally On Wall Street • IH Market News • 06/12/2024 01:07:00 PM
- Paramount Ends Skydance Talks, Oracle Shares Surge 8.7% on New Partnerships, and More News • IH Market News • 06/12/2024 11:19:10 AM
- U.S. Futures Rise on Fed Decision; Oil Gains on Demand Forecasts • IH Market News • 06/12/2024 11:13:28 AM
- Nasdaq, S&P 500 Recover From Early Weakness To Reach Record Highs • IH Market News • 06/11/2024 08:49:55 PM
- FDA Panel Supports Eli Lilly’s Donanemab, Rio Tinto Expands Stake in Boyne Smelters, and More News • IH Market News • 06/11/2024 11:11:40 AM
- Apple extends its privacy leadership with new updates across its platforms • Business Wire • 06/10/2024 09:40:00 PM
- Apple empowers developers and fuels innovation with new tools and resources • Business Wire • 06/10/2024 09:00:00 PM
- macOS Sequoia takes productivity and intelligence on Mac to new heights • Business Wire • 06/10/2024 06:43:00 PM
- watchOS 11 brings powerful health and fitness insights, and even more personalization and connectivity • Business Wire • 06/10/2024 06:43:00 PM
- iPadOS 18 introduces powerful new intelligence features and apps designed for Apple Pencil • Business Wire • 06/10/2024 06:43:00 PM
- iOS 18 makes iPhone more personal, capable, and intelligent than ever • Business Wire • 06/10/2024 06:43:00 PM
- Introducing Apple Intelligence, the personal intelligence system that puts powerful generative models at the core of iPhone, iPad, and Mac • Business Wire • 06/10/2024 06:43:00 PM
- visionOS 2 brings new spatial computing experiences to Apple Vision Pro • Business Wire • 06/10/2024 06:43:00 PM
Glidelogic Corp. Becomes TikTok Shop Partner, Opening a New Chapter in E-commerce Services • GDLG • Jul 5, 2024 7:09 AM
Freedom Holdings Corporate Update; Announces Management Has Signed Letter of Intent • FHLD • Jul 3, 2024 9:00 AM
EWRC's 21 Moves Gaming Studios Moves to SONY Pictures Studios and Green Lights Development of a Third Upcoming Game • EWRC • Jul 2, 2024 8:00 AM
BNCM and DELEX Healthcare Group Announce Strategic Merger to Drive Expansion and Growth • BNCM • Jul 2, 2024 7:19 AM
NUBURU Announces Upcoming TV Interview Featuring CEO Brian Knaley on Fox Business, Bloomberg TV, and Newsmax TV as Sponsored Programming • BURU • Jul 1, 2024 1:57 PM
Mass Megawatts Announces $220,500 Debt Cancellation Agreement to Improve Financing and Sales of a New Product to be Announced on July 11 • MMMW • Jun 28, 2024 7:30 AM