Daily Management Review

Goldman Sachs' Analyst Note Sourly Criticized By Apple


A rare public spat between the blue chip Wall Street firm Goldman Sachs Group Inc and its client and tech giant Apple Inc was on display as the iPhone maker openly severely criticized analyst of Goldman Sachs.
The accounting methods followed by Apple for its new TV+ product was criticized by Goldman Sachs analyst Rod Hall which resulted in a disagreement between the two parties. The analyst had said in a research note that the accounting method adopted by Apple could result in loer profits and gross margins for its TV+ product.
Responding to the note, Apple said that it does “not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results.”
There was no comment from Goldman. The firm also did not make the concerned analyst available for comments. There was also no comment from Apple about its relationship with Goldman apart from the comment on its note.
This public disagreement between the two firms is rare and awkward for both the companies even though the research functions of the Wall Street banks are very well segregated form from their other business functions.
In the last decade, more bond issuances have been underwritten by Goldman Sachs for Apple than any other investment bank has for the iPhone maker. According to financial data provider Refinitiv., the total value of bond issuances for Apple done by the bank is about $44 billion.
And as recently as two months ago, advice on merger and acquisitions was given to Apple by Goldman Sachs. According to Refinitiv, the Wall Street bank was the main banking partner for Apple in its  deal to acquire the majority of Intel’s smartphone modem business worth $1 billion just a couple of months ago.
And the two companies worked with each other just last month for launching of the first credit card of the companies called the Apple Card.
The laws passed in the United States in the early 2000s, all banks are forced to formally separate their equity research and investment bank divisions. The laws were made to prevent any influence of investment bankers on the equity analysts and protect their independence because investment bankers often are found to work with the same companies as the equity analysts but with a completely different aim.
The independence of the research division is generally respected by corporate clients. But when this does not happen there is quite a bit of talk about such issues.
Questions from analysts about the company’s capital requirements were refused to be answered by Tesla Chief Executive Elon Musk in May last year and had called the questions “boring” and “not cool” while he was on a conference call with analysts over the performance of the company. A number of analysts were directly criticized by him later for negative calls.
The place where Apple accounts for the value and costs of free services - like Apple Maps was changed by the company at the beginning of its fiscal year as the company put them in the services segment from the earlier practice of accounting them under the individual products.
And Apple was likely to treat TV+ subscriptions in a similar way, said Goldman’s Hall in his note and would be treating it as a discounted bundle of a free service that would be considered along with a hardware purchase. According to Hall, this practice would result in lower average selling prices for iPhones and other Apple devices for Apple investors but also resulting in the services segment of the company registering faster growth.

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