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Wireless (Apple) Hardware Technology

Apple Charges For 802.11n, Blames Accounting Law 471

Posted by kdawson
from the don't-release-early-or-often dept.
If you have a Core 2 Duo Macintosh, the built-in WLAN card is capable of networking using (draft 2) 802.11n. This capability can be unlocked via an update Apple distributes with the new AirPort Extreme Base Station. Or, they will sell it to you for $4.99. Why don't they give it away for free, say with Software Update? Because of the Sarbanes-Oxley Act (which was passed in the wake of the Enron scandal). iLounge quotes an Apple representative: "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."
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Apple Charges For 802.11n, Blames Accounting Law

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  • by BWJones (18351) * on Tuesday January 16, 2007 @06:24PM (#17636926) Homepage Journal
    The issue here is that Apple's patch can be construed as "new functionality" as there is significantly increased network performance in products that have been shipping for months, whereas most of the patches from MS are attempting to fix existing, yet broken functionality.

  • by Anonymous Coward on Tuesday January 16, 2007 @06:28PM (#17636992)
    Microsoft add new features too. The security centre & windows firewall for one example.
  • NVIDIA has done this (Score:4, Informative)

    by Anonymous Coward on Tuesday January 16, 2007 @06:28PM (#17637002)
    If you have a GeForce/Quadro, it is called 'NVIDIA PureVideo Decoder'.
  • Re:Wow (Score:3, Informative)

    by UnknowingFool (672806) on Tuesday January 16, 2007 @06:43PM (#17637316)

    PowerToys is considered a beta offering. Microsoft will not support it and thus is not a product. From the page:

    We take great care to ensure that PowerToys work as they should, but they are not part of Windows and are not supported by Microsoft. For this reason, Microsoft Technical Support is unable to answer questions about PowerToys. PowerToys are for Windows XP only.
  • Re:Wow (Score:3, Informative)

    by steve_bryan (2671) on Tuesday January 16, 2007 @06:46PM (#17637368)
    I suspect Apple is just spreading the pain resulting from Sarbanes-Oxley and as time passes others, probably including Microsoft, will be forced to a similar position. At this point the idea that Apple has to "eek out a profit" is comical. Take a look at the financial numbers for Apple to see how silly that comment is. There are reasons why their stock price is at its highest level ever.
  • That's the SEC (Score:5, Informative)

    by toonerh (518351) * on Tuesday January 16, 2007 @06:54PM (#17637506)
    Even before Sarbanes-Oxley (e.g. in the mid-1990's) ethical, conservative CFO's [admitted a rare breed] were very careful about "recognizing revenue" for a product when a newer or better version was in the works. Our "head up the ass" Congress passed Sarbanes-Oxley and now companies have hire many more lawyers to cover their asses. Lots of companies in Apple's situation would simply do NOTHING - no charge, no upgrade: WYSIWYG hardware. Is that in the consumer's best interest? I think not!
  • Re:bs (Score:2, Informative)

    by Behlal (27396) on Tuesday January 16, 2007 @07:16PM (#17637908)
    I love when people lie and claim you have to pay "every year" even though new versions of OS X come out about every 2 to 3 years. Kudos for silently jacking up the price to $150 as well.
    Erm, you aren't exactly 100% correct yourself. http://en.wikipedia.org/wiki/OS_X [wikipedia.org]. Forgetting 10.0->10.1 because it was a free update, they have released updates pretty much yearly since then. The major exception is Jaguar, which will have had almost two years (though, Tiger was moved forwards, so was less than a year after Panther). The current cost of the OS is $129 (and if wikipedia is right, has been since at least 10.1). So 2-3 years is pretty far off the mark. P.S. I like active development of my software/OS and am very happy with my MBP.
  • by Anonymous Freak (16973) <prius...driver@@@mac...com> on Tuesday January 16, 2007 @07:21PM (#17637966) Journal
    Except software has never really been considered a 'feature'. Free updates that include new functionality in software are not considered a problem.

    It's HARDWARE that has the problem. For example, if Ford sold a car, then six months later said "bring your car in, and we'll turn on Anti-Lock Brakes for free!" that there's a problem. The car really had to include it all along, so it could be considered that this feature wasn't delivered until six months later, so they shouldn't be able to count the income from that feature until it is delivered.

    Although I would think that common sense would say that this would only apply when the feature *WAS* advertised at time of sale, with the caveat that wouldn't be available for some time. "Anti-Lock Brakes included, to be unlocked via a software update in six months!" is selling the ABS, even though you don't get it. The 'free update' six months later means that the customer wasn't sold ABS at time of purchase, so the income to Ford at time of purchase is based on *NOT* including ABS. So they COULD claim ABS as a 'free update'.

    Back to Apple, because they never advertised it as 802.11n, customers couldn't in good conscience be considered to have bought it expecting .11n. Apple never guaranteed .11n functionality at time of purchase, so .11n functionality wasn't something they 'sold'. Any computers sold SINCE the announcement I would say fall under this provision, since Apple has explicitly said that such computers include .11n hardware. Although I would hope that new computers include the enabler by default. (Although neither the Tech Specs pages nor the Store pages on any of the hardware say .11n yet.)
  • IAACPA - I Am A CPA (Score:5, Informative)

    by Steve Hamlin (29353) on Tuesday January 16, 2007 @07:28PM (#17638066) Homepage

    It's amazing what gets 'blamed' on Sarbanes-Oxley. And most of the time, completely off base. While there is surely some money-grubbing from Apple, this is probably nothing more than Apple making a conservative decision to apply existing accounting policy more stringently. The previous poster here [slashdot.org] gets it right.

    I am a forensic accountant - I do large corporate financial investigations, which involve accounting analysis and numerous interviews of management.

    And I can't tell you how many times I've heard people in companies, when asked about $FOO, say "we had to do this because of SOX". Most of the time, they couldn't tell you what SOX is, or why that is the cause of $FOO.

    SOX has turned into the Boogeyman, the shadow lurking in the background of any financial discussion. Unknown reason? SOX made us!

    At its simplest, SOX requires that companies document what they do and how they do it. "404" is just a requirement that companies have a complete set of working documents describing accounting processes and the controls around those processes, and that they have actually tested to see that the processes and controls work properly.

    Along with 404, SOX also heightened the burden on the financial accounting groups. Now CEOs and CFOs sign statements in quaterly and annual SEC filings, under penalties of civil and criminal law, that certify that they are "responsible for establishing and maintaining internal controls", including upward reporting from subordinates and subsidiaries, and that the controls have been tested and reported on in the filing.

    As a result, corporate accounting departments have tightened up, More documentation of different types of accounting processes mean that existing, latent accounting issues are being surfaced and addressed. More conservative usually, in the sense that one does not 'push the envelope' of GAAP.

    This is not really 'SOX made us do it', but rather as result of the analysis that SOX calls for. Sematics, but an important difference, I think.

    Accounting Background - What is at work here?

    SOP 97-2 "Revenue Recognition for Software Products with Multiple Deliverables".

    SEC and AICPA: Revenue generally is realized or realizable and earned when all of the following criteria are met:
    - Persuasive evidence of an arrangement exists
    - Delivery has occured or services have been rendered
    - The seller's price to the buyer is fixed or determinable, and
    - Collectibility is reasonably assured

    So, Apple decided that at the time of the sale of the computer with 802.11n (but not yet functional), with no additional amounts due from the customer, that since Apple had not perfected delivery of the complete laptop with 802.11n, they had not finalized all terms of the delivery, and thus had not "earned" all of the revenue from that sale. This would cause them to 'defer' some portion of the revenue (a liability on the balance sheet) until the final piece of the sale (802.11n) was delivered to the customer.

    Under Apple's current policy, the computer is sold without 802.11n, delivery of this total package is complete when the customer receives the laptop, and Apple recognizes that entire sale as current revenue. Then a new $4.99 sales happens when the customer purchases the upgrade.

    See: NY Society of CPA's discussion of SOP 97-2. [nysscpa.org]

    Now, there are certainly valid objections to the scope and scale of 404, but those are fairly focused on the size of companies that SOX should apply to, and how much testing the auditor should demand that they and the company do around 404.

  • by mr_matticus (928346) on Tuesday January 16, 2007 @07:41PM (#17638264)
    Software products are advertised for their core functionality. They're intended to be fluid products, and accounting doesn't care what features are added or removed in software, as long as Photoshop stays an image editor and Dreamweaver stays a web content editor, the rules are met.

    Not the same with hardware. Any material change in the product has to be accounted for. If Apple already filed its disclosure statements indicating that its products had b/g wireless chipsets in it (which it would have), it can't go back and change that later and say "oops actually it's 802.11n." Doing so would be a "material misstatement" punishable by the PCAOB under Sarbanes-Oxley. By charging for the 'upgrade' they can file current accounting documents saying that the products were upgraded with new functionality.
  • by skinfitz (564041) on Tuesday January 16, 2007 @08:01PM (#17638532) Journal
    ... enables dormant hardware that isn't being charged for in the purchase of the product.

    Yes it is. If you bought the hardware you paid for everything. There are no 'free parts' - all the components are part of a whole. The fact that something isn't enabled is completely irrelevant - you were charged for it and paid for it.

    What happens if we apply this thinking to patches? Oh I'm sorry - we fixed that last exploit with a new version of Safari that adds xxxxx feature, but because it wasn't there when we sold you the computer, we are going to have to charge you.

    This is nothing more than fleecing users for cash.
  • Re:Well understood (Score:2, Informative)

    by Bogus-Blogus (1052144) on Tuesday January 16, 2007 @08:03PM (#17638582)
    As someone who sells for a software vendor, I concur on the detrimental effects Sarbox compliance. Sarbox has added levels of complexity to the revenue recognition process that shouldn't be there. It is driving up our cost of sales and making a lot of busy work for lawyers, accountants and auditors.

    Forget whether $4.99 is a fair price. The important issue is whether Apple's explanation is really true, i.e. that they have to charge for it.

    Their spin almost fits -- if you sell a product and then later materially change the product you sold such that the first release would be considered not a product, then you have revenue recognition issues. You might have to re-book the deal because you sold something that did not yet exist.

    In this case, I see this as a new feature to an existing product. New features that don't re-define the product aren't going to cause a Sarbox issue.

    From the sales perspective, if someone says "Sarbox issue", you should be skeptical. Usually "Sarbox issue" means "I'm too lazy to figure out how to get this to market without causing any revenue recognition issues. And I might see some money in it too."

  • Re:bs (Score:3, Informative)

    by mollymoo (202721) on Tuesday January 16, 2007 @08:06PM (#17638620) Journal
    10.1 hasn't been updated since 2002-06-21. 10.2 hasn't been updated since 2004-12-04. With the release of 10.5, 10.3 will cease being updated. Now, it's not like your Mac is likely to get pwned without being patched every month or two, as is the case with 4-year-old copies of Windows, so updates aren't as critical to simply keep your system going. But the fact is if they find a new hole in 10.1 or 10.2 tomorrow, they aren't going to fix it. It remains to be seen if this policy will continue if security holes in Macs actually start getting exploited in the wild, but for the time being Apple really do have extremely short product lifecycles. The lack of product activation (there isn't even a license key, let alone all the bullshit you get with XP) mitigates this a bit if you don't mind a bit of piracy, and family pack licenses mitiagate it if you have multiple Macs, but it still sucks. Me? I take "family pack" literally, so I updated my iBook from my brother's purchased Tiger family pack disks. If they wanted to make it clear it was for a single households, they should have called it a "household pack" :)
  • by Divebus (860563) on Tuesday January 16, 2007 @08:31PM (#17638914)

    Upgrade through extortion is not uncommon at all in the high powered computer [graphics] world.

    First, buy a $600,000 Quantel compositing workstation. You want glints, glows and shadows with that? $15,000 later, they send the 60 digit unlock code. No hardware change required. First time I saw that, I said *WTF* so loud they heard it back in England. If it's in there, why can't I use it NOW?

    Same with some of the old 3D modeling software on SGIs etc. Not even an updated piece of software, just a bunch of keys to turn on the features - and expire them.

    Should I remind everyone about QuickTime Pro?

  • by skinfitz (564041) on Tuesday January 16, 2007 @08:59PM (#17639306) Journal
    If there was a chip license fee, you already paid it when you paid for the computer. 802.11n requires no payment of license to use as the frequency is public band.

    It's profiteering at the expense of users.
  • by Gordonjcp (186804) on Tuesday January 16, 2007 @09:01PM (#17639330) Homepage
    I'm trying to not be an apple apologist as the $4.99 price is ridiculous

    Oh, come on, that's nothing! Your average stereotypical Mac owner probably spends twice that in a single sitting in Starbucks. For those of us outside the US, it gets even better - that relates to about £2.60 at the current exchange rate. An upgrade to 802.11n for less than the price of 50 blank CDs? Oh, I think so...
  • Re:Sarbanes Oxley (Score:2, Informative)

    by aczisny (871332) on Tuesday January 16, 2007 @09:15PM (#17639528)
    Enron got in to trouble because they were booking sales on unshipped product. THe wayapple is looking at this put in enron accounting terms would look something like this. 1) holding company owned by enron agrees to buy 10 barrels of oil from enron. 2) enron books the sale even though they just paid themsleves 3) but they don't book the liability because they just deliver 9 barrels of oil and defer delivery of the tenth to a later date. Here apple is scared that they will get flagged for booking the sale of an incomplete product. I don't really see how this applies but I can see why they are paranoid.

    That sounds exactly like what has happened to apple, except in reverse. Apple advertised a product with some set of features x. But now it turns out they really shipped x+1 and just turned it off in software. I'm not sure of any way to squint at Apple's promotional materials from when these products were sold and somehow think people got less than what they were promised, which is where you would have a problem with Sarbanes/Oxley. It's much closer to say, a baker being in violation of S/O because you ordered a dozen donuts and he gave you thirteen (the proverbial baker's dozen). And what about other hardware companies? If turning things on after selling a product is illegal, HP in the story above this (about having VT turned off and now they're releasing a new bios to enable it) would be violating S/O and I can't imagine their lawyers haven't given this just as much thought as Apple's. This charging five bucks so as not to be in violation of S/O seems to be pretty far fetched to me.

  • by mr_matticus (928346) on Tuesday January 16, 2007 @10:43PM (#17640598)
    It was sold and marketed as a b/g wireless chipset; it was reported in accounting as a b/g wireless chipset. As far as the documents filed are concerned, it did NOT have the n-capability. Wireless-n did exist in the hardware, but it was activated and it wasn't ready. They were stuck with two subpar options: 1) file that the hardware was 802.11n capable and risk getting in trouble for not supporting advertised features or 2) not advertise the capability and deal with the upgrade later on. Obviously the latter garners less negative publicity.

    You have to look at filings from an accounting perspective to understand this. You report a software unit, and you report your individual component purchases (every screw, every ROM, every PCB). You don't report software features in accounting.

    From an accounting standpoint, the chipset DID change, even though the ability was physically present. 802.11n is a wholly new and non-interoperable feature. It's not a faster 802.11g card; it's not a software improvement. It's a different technology that requires compatible hardware and software to function. Don't overthink it and try to make a technical argument based on the fact that it's an evolutionary standard, because it's not. An 802.11g device will never work as an 802.11n device, nor will it work on an 802.11n network. It WILL work on a mixed-mode network, but that is not the same thing.

    The hardware capabilities did change as apparent to the device. It did not support a technology before, and now it does. Both hardware AND software are needed to make it work, and as far as reported to federal regulators, their products had neither. Adding this "new" physical functionality requires an upgrade not originally reported in their revenue disclosures.
  • That makes no sense at all.

    Deferring the income would be selling it as a 802.11n device that will be turned on later.

    Magically converting a device that no one knew was 802.11n to 802.11n is not 'deferring' anyway, anymore than cars have 'deferred' upgrades when the car dealership randomly gives them a free cup holder at their 30,000 mile oil change.

    The law is designed to stop companies from selling things that don't exist yet, and accounting for them now, before they've actually made them. I.e, selling an empty lot and a contract to build a building on it counts as an empty lot now and a building when it's built, you can't count the building now.

    I don't know if that example is strictly true, but that's the theory going on, because companies would use silliness like this to disclose things whenever they were convenient, and sometimes they'd even plan to back out of said contracts in the first place, and do them entirely to make their balance sheet look good.

    I don't know what kind of crack Apple is on, or if this is just a scam, but no law requires anyone to charge for free, unadvertised upgrades, whether on hardware or software.

    Now, what this could have done is magically change the 'value' of their existing inventory, but paradoxically, only because they're charging for a feature. I.e, the value of their inventory that can upgrade to 802.11n are original value + (estimated percentage of people who will upgrade * $4.99). That might screw up their accounting, but they did that to themselves.

  • by StrongAxe (713301) on Tuesday January 16, 2007 @11:14PM (#17640944)
    When I was in high school, we had an IBM 1130 system. We had a slow line printer. IBM sold two different versions of that printer - a slow one, and a fast one. The fast one cost several thousand dollars more. The difference? one jumper (which, if you switched manually, you voided the warranty).

    Often, manufacturers will sell a range of products, and it's cheaper for them to sell artificially castrated versions of the expensive versions as cheap ones, rather than manufacturing a cheaper product separately.

    If you pay for a cheap unit and they give you an expensive one with the additional features disabled instead, you have no cause to whine about it being disabled, since you didn't pay for it - you got it for free.
  • by mr_matticus (928346) on Tuesday January 16, 2007 @11:24PM (#17641044)
    When Apple started shipping the components, the standard wasn't finished or available to be implemented. Had they announced 802.11n support and something had changed wrt the spec, they would have been completely battered and hung out to dry for not delivering on an advertised feature. By not disclosing the capability, they had absolutely nothing to lose. Keep in mind that they had NO obligation whatsoever to enable the n-mode on these machines, since it was never an advertised or reported feature.

    Exactly as you specified, the law prohibited Apple from marketing the devices as n-compliant, and it also prohibits them from retroactively restating its hardware. They can't go back and say, "oh by the way, the last 800,000 computers we shipped had different hardware than reported in our disclosures." They HAVE to treat material changes as product upgrades, and in order to include it in accounting filings, there has to be money involved. Yes, it is a very strict interpretation of the PCAOB rules, but keep in mind they're being investigated at this very moment for their accounting practices. Now's not the time to play fast and loose with the regulators.

    The law requires ACCURATE reporting of products and services, and expenditures therein. In order to revise an existing product, you must handle each as a new upgrade according to a strict interpretation; anything else represents a material misstatement, something which can come with heavy fines in the post-Enron age. If Intel shipped an update uncrippling its old Celerons to full-blown Pentiums, they'd be in the same boat--those products were sold as Celerons, not as Pentiums.
  • by mstone (8523) on Wednesday January 17, 2007 @02:23AM (#17642554)
    You're confusing the physical capacities of the chips with the law.

    The law says 802.11g and 802.11n are different products. Moving from one to the other is a material change in your computer, and the law doesn't care whether you have to swap out hardware or just patch the firmware.

    When Apple sold the computer, it said the computer had 802.11g functionality. The fact that the chipset was capable of something else is irrelevant. Apple only had to be able to prove that the chips it used did in fact deliver the promised 802.11g functionality.

    If Apple had listed the machine as "802.11n-capable," the law would have required Apple to deliver 802.11n functionality at the time of sale.

    If Apple handed out the patch for free now, you'd have customers getting what the law considers to be a material change in the product at no cost, which comes reasonably close to what the law calls "selling unfinished products." A regulator would have grounds for saying that Apple charged customers for the 802.11n capacity at the time of sale, but didn't deliver that functionality until later.

    That's illegal. According to the law, a company is only allowed to receive money for functionality when it actually delivers that functionality.

    The fact that the law considers 802.11g to be a different product from 802.11n rules out a free upgrade, period. Either Apple delivers 802.11n at the time of sale, or it charges for an upgrade later. Those are its only options.

    By the same token, the price Apple charges for the upgrade has to represent a reasonable fee for the material change, as balanced against the actual cost to Apple of making the change. $4.99 is a lot less than it would cost to swap in new hardware, and it's low compared to the ticket price of most software. I'd imagine it just about covers the fees to the credit companies and Apple's internal processing costs, with a little left over to cover the cost of development.

    This is hardly going to be a cash cow, after all. The absolute number of people who can get this upgrade is relatively small, and all Apple's new machines are being sold as 802.11n-capable.
  • by mr_matticus (928346) on Wednesday January 17, 2007 @06:34AM (#17643808)
    A new resolution isn't a new technology. So long as it had HD support, it is reasonably expected that it should perform to the hardware limits. The only difference separating 720p and 1080p is the number of pixels. Think of it this way: 1080p doesn't require any different hardware than 720p--it just requires sufficiently capable hardware to push the extra pixels, which the 360 has had from the beginning. If the XBox were a consumer electronics device that didn't support HD at all, then the introduction of high-resolution HD support would be problematic in the same way.
  • by nosferatu1001 (264446) on Wednesday January 17, 2007 @08:04AM (#17644288)
    Agreing with Mr Matticus here - the hardware you bought hasnt changed, in a material way. 802.11n is materially different to g, however 1080p is not to 720p - the latter can be run on the same hardware, as the 360 demonstrates!

    Companies have to tread VERY carefully with SOX; the rules allow us auditors very little room to interpret anymore, which is causing problems, so coupled with the investigation they are currently under they will be being VERY careful about this!

    As for the $5 price - that will be presuambly a fair value appraisal. You generally can't give things away (say if theyd only charged $0.01) unless you want to incur tax liabilities yourself!

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