Linked List: November 8, 2017

Wednesday, 8 November 2017

Understanding Apple’s Multinational Tax Payments 

Great piece by Shawn Tully for Fortune:

I figured that if this reporter found corporate taxes baffling, so did lots of sophisticated Fortune readers. So I dug into the financials of Apple to grasp how the world’s most valuable publicly traded company accounts for taxes. Albert Meyer, a forensic accountant and former academic who runs investment firm Bastiat Capital, helped explain how and why Apple books or defers taxes on different categories of income, and which rates it applies to each category. With his help, I present a primer on taxation of multinationals, using Apple as a case study.

I still don’t quite understand the whole thing, but I have a much better grasp than I did before. And I’m more convinced than ever that Apple is doing something complicated, not something devious.

It’s important to emphasize that Apple actually pays a lot of tax compared to other U.S.-based corporations with immense foreign earnings, and takes a highly conservative approach to tax accounting. […]

For FY 2016, Apple booked total pre-tax earnings of $61.4 billion. On its income statement, Apple showed a “provision for taxes” of $15.685 billion. That number is an expense that’s deducted straight from pre-tax income of $61.4 billion to yield net income of $45.7 billion. Hence, its reported “effective tax rate” was 25.6% ($15.685 billion divided by $61.4 billion), well below the official 35%, but on the high side for multinationals, many of which are in the teens.

The news coverage on Apple’s tax avoidance would lead you to believe (and in fact has led many to believe) that Apple pays a lower effective tax rate than most companies, when the truth is they pay a higher rate than most of their peers.

And later:

It’s important to note that Apple is extremely responsible in the use of this exemption for reinvested earnings. Many multinationals report that they intend to plough all of their foreign profits into operations, and hence, don’t make any accruals for U.S. taxes on their offshore earnings. Apple is the rare tech titan that books large annual accruals that lower net income.

The problem isn’t Apple’s tax structure, it’s U.S. law. You can argue that Apple should voluntarily pay more in taxes than they’re legally obligated to, but no one who holds such views would ever get hired as a finance executive at a large publicly held company.

Barry Ritholtz: ‘Why Apple Should Buy Netflix’ 

Barry Ritholtz, writing for Bloomberg:

I try not to give billionaires or corporate managers unsolicited advice on what they should do with their money. Warren Buffett and Apple Inc. both have done rather well for themselves and their investors without my help. Today, I violate my own rule: Apple should buy Netflix Inc. in an all-stock deal for about $100 billion. […]

The upsides for Apple are fairly obvious; the biggest downside is the cost. If anything, it might spare us the boring quarterly routine of analysts expecting soft iPhone sales and then being shocked when the company beats to the upside.

If Apple passes on Netflix, don’t be surprised if Amazon does not. That alone is reason to make the purchase.

Usually when someone proposes Apple make a huge acquisition, I hurt my eyes by rolling them so far back in my head. I remain unconvinced that Apple should buy Netflix, but I don’t roll my eyes at the notion.

I think the main problem is that there’s nothing magical about Netflix. Surely Apple could buy HBO for less money than Netflix would cost, and I would put HBO’s original content up against Netflix’s any day. I also think it’s a mistake to underestimate Apple’s ability to build its own first-class original content streaming service based on the crappy shows it’s released to date. A couple of more deals like the Amazing Stories one with Steven Spielberg and they’ll already have a foot in the game — for way less than the $100 billion it would take to buy Netflix.

And, just as I was about to publish this post, this just in: Apple has announced a deal for a two-season scripted TV series starring Jennifer Aniston and Reese Witherspoon as competing morning TV show hosts, with House of Cards producer Jay Carson writing the pilot and serving as showrunner.

Ritholtz (and others, like Om Malik and Ben Thompson) argue that Apple’s incredible cash hoard would allow them to make an expensive acquisition like Netflix. My argument is that Apple’s cash hoard would allow them to outbid the competition for the best new shows. Make Apple Studios the place where top notch talent takes new pitches first, knowing they’ll get paid top dollar and treated well. The trick isn’t the money — the trick is hiring the right executives to identify the best new shows.

Logitech Will Brick Its Harmony Link Hub for All Owners in March 

Chris Welch, reporting for The Verge:

Logitech has announced that it’s shutting down all services for the Harmony Link hub, a plastic puck the company released in 2011 that gave smartphones and tablets the ability to act as universal remotes for thousands of devices.

Owners of the product have received an email from the company warning that the Link will completely stop working in March. “On March 16th, 2018, Logitech will discontinue service and support for Harmony Link. Your Harmony Link will no longer function after this date,” the email says. There’s no explanation or reason given as to why service is ending in the email, but a Logitech employee provided more details on the company’s forums. “There is a technology certificate license that will expire next March. The certificate will not be renewed as we are focusing resources on our current app-based remote, the Harmony Hub.”

This sucks, but it seems like the way of the future with cloud-backed products. In the old days, products stopped working when they broke. Now, they stop working when the company that sold them loses interest in continuing to support them. It feels spiteful. More than ever, it matters how much you trust the company from which you buy stuff.

Apple at Its Best 

Ben Thompson, writing at Stratechery:

In these instances the iPhone X is reaching the very pinnacle of computing: doing a necessary job, in this case security, better than humans can. The fact that this case is security is particularly noteworthy: it has long been taken as a matter of fact that there is an inescapable trade-off between security and ease-of-use; TouchID made it far easier to have effective security for the vast majority of situations, and FaceID makes it invisible.

The trick Apple pulled, though, was going beyond that: the first time I saw notifications be hidden and then revealed (as in the GIF above) through simply a glance produced the sort of surprise-and-delight that has traditionally characterized Apple’s best products. And, to be sure, surprise-and-delight is particularly important to the iPhone X: so much is new, particularly in terms of the interaction model, that frustrations are inevitable; in that Apple’s attempt to analogize the iPhone X to the original iPhone is more about contrasts than comparisons.

“Surprise and delight” are intangibles. You can’t measure them with a benchmark or instrument. There are contingents of hardcore power user and open source nerd types who disdain surprise and delight as product attributes — and no surprise, those are the folks who seem to be dismissing iPhone X as a cynical cash grab.

Steven Soderbergh’s ‘Mosaic’ 

Angela Watercutter, writing for Wired:

Where they ended up was a smartphone-enabled story, developed and released by Silver’s company PodOp, that lets viewers decide which way they want to be told Mosaic’s tale of a children’s book author, played by Sharon Stone, who turns up dead in the idyllic ski haven of Park City, Utah. After watching each segment — some only a few minutes, some as long as a standard television episode — viewers are given options for whose point of view they want to follow and where they want to go next. Those who want to be completest and watch both options before moving on can do so, those who want to race to find out whodunit can do that too. Because each node, filmed by Soderbergh himself, feels like a TV show, launching Mosaic can be akin to sneaking a quick show on Netflix while commuting to work or waiting on a friend; but because it’s a long story that’s easily flipped through, it can also be enjoyed like the pulpy crime novel on your nightstand, something you chip away at a little bit at a time before bed.

This sounds fantastic, especially in the hands of someone as innovative and talented as Soderbergh. iOS-only (for now?), but that includes Apple TV.