Free software will result in $900 million deferral at Apple

Company says that offering iLife, iWork, and Mavericks for free to customers will come at near-term cost in margins.

CNET
Turns out that free comes at a cost.

Last week, Apple announced that it planned to make iLife, iWork, and Mavericks software available for free. "We are turning the industry on its ear," CEO Tim Cook said.

But in the conference call Monday following the release of the company's fiscal fourth quarter , Apple said that the company will need to defer a larger portion of sales of those devices, or about $900 million in revenue, to pay for it.

The company has been deferring revenue on many existing products, including iOS devices and Macs as part of standard upgrades, but that addition means deeper cuts into that margin as part of the new plans.

"So we are now making iPhoto, iMovie, Pages, Numbers, and Keynote available as free downloads to customers who purchased new iOS devices, and we are also making Mavericks and future updates free to our Mac customers," CFO Peter Oppenheimer said. "As a result of these additional rights and features, we are deferring a greater portion of sales of each iOS device."

All told, that tallies up to around a $900 million sequential increase in the amount of revenue the company is deferring.

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 profit margins.

Cook, who also participated in the conference call to discuss the company's results, chimed in to add that the free software offering was "just another reason why everyone should buy a Mac."

 

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