Apple's iPhone 4 Bumper Giveaway May Cost $175 Million
To allow for giving away iPhone 4 bumpers, Apple will set aside $175 million of iPhone 4 revenue in the September quarter, according to Apple CFO Peter Oppenheimer.
During the Q&A following Apple's third quarter financial results, Oppenheimer explained that the company will be deferring revenue for those iPhone 4s that haven't been sold with Bumpers until the end of the September quarter. This is so that the company has a pool of cash to allow them to provide the free Bumpers.
"There are two impacts of this. First is that we will need to defer revenue for the iPhone 4s that we sell where we've not delivered the bumpers and where we have not heard from the customers wanting to place an order," Oppenheimer explained.
Oppenheimer expects the accrual, the amount set-aside on the balance sheet to meet the liability, to be $175 million.
"I expect the accrual we'll need to make (a revenue accrual with no cost) will be about $175 million in September quarter and will be recorded as revenue in the December quarter," Oppenheimer told analysts.
"We will expense the cost of Bumpers when we ship them to customers and our most important objective is to take care of every customer," he added.
While giving away free bumpers to the tune of $175 million (£114 million) is a significant cost, it's far cheaper than if Apple had called a product recall. That would have cost them $1.5 billion, according to Techdigest.
Apple is taking the iPhone 4 bumper off the market, so that it can amass stock to send to iPhone 4 customers.
People are said to be concerned that they will not be receiving an Apple-made Bumper, but a cheaper, third party case. Apple CEO Steve Jobs told the audience of invited journalists at the press conference to discuss the iPhone 4 issues: "We can't make enough bumpers. So what we're going to do, is source some other cases and give users a choice of cases. And they'll be able to pick one."
Apple's free Bumper deal will only be available until September 30, suggesting Apple may be working on a more permanent solution for phones sold after that date. After the press conference where Apple announced the free Bumper fix, Consumer Reports said: "We look forward to a long term fix from Apple. As things currently stand, the iPhone 4 is still not one of our recommended models."
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