MacRumors

A Senate subcommittee has released a 40-page memo accusing Apple of not paying billions of dollars in federal taxes through "extensive tax-avoidance strategies".

Apple CEO Tim Cook, CFO Peter Oppenheimer, and Apple's head of tax operations Phillip A. Bullock will appear in front of the U.S. Senate Permanent Subcommittee on Investigation tomorrow. The company issued a statement earlier today in a preliminary defense against the Subcommittee's accusations.

The subcommittee, which previously explored tax avoidance by other multinational corporations using offshore subsidiaries, found similar practices at Apple. In addition, the subcommittee review discovered an unusual tax scheme: Apple’s claim that two key offshore companies are not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies. One of those Irish subsidiaries has paid no income taxes to any national tax authority for the past five years.

"Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven," said Sen. Levin. "Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed."

The full forty-page memorandum (PDF) goes into some detail on the company's tax strategies, and we will likely hear much more about this at tomorrow's hearing.

Note: Due to the political nature of the discussion regarding this topic, the comment thread is located in our Politics, Religion, Social Issues forum. All MacRumors forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

While Apple's 15" MacBook Pro was the first consumer notebook to gain a Retina-level display nearly a year ago, it is no longer the only such offering, as Google's Chromebook Pixel with its 12.85" 2560x1700 display and Toshiba's Kirabook with a 2560x1440 220 PPI display have joined the market in recent months.

Seeking to raise the ante on Retina displays, Samsung and Sharp have both introduced new high-resolution displays in the past week, targeting notebooks and ultrabooks with the latest technology. The new displays from both companies sport 16:9 ratios, making them unfit for Apple's line of notebooks, which all use 16:10 ratio displays, but they should make Retina displays a mainstream feature in the relatively near future.

Sharp last week announced new 11.6", 14", and 15.6" displays with pixel densities of 235-262 PPI, joining the company's existing 13.3" display at 221 PPI. Samsung's announcement today included a new 13.3" display with a 3200x1800 LCD panel at an even higher 276 PPI.

For comparison, Apple's 13" MacBook Pro with Retina Display has a 2560x1600 13.3" display at 227 PPI.

While high resolution is the most obvious benefit of these new displays for consumers, some of the screens bring other benefits as well. Samsung says its new 13.3" display offers 30% power savings over existing displays, something that would be important for a potential MacBook Air with Retina display. That machine is constrained by needs for a super-thin display and battery. And even for Apple's existing Retina MacBook Pro, advances being brought about by Samsung and Sharp are likely to make their way into Apple's notebook displays in the future.

Sharp advertises similar energy-saving benefits from its new IGZO displays:

IGZO technology enables smaller thin-film transistors and increased light transmittance. As a result, fine text can be rendered crisply and clearly, and images can be displayed with impressive realism. For example, the 14-inch panel boasts a pixel density of 262 ppi, which represents 1.67 times the number of pixels of full high definition. Increased light transmittance also means lower rates of energy consumption, with IGZO technology reducing the amount of power required to drive liquid crystals during the display of still images. These factors lead to greater energy efficiency and longer battery life on notebook PCs.

Apple has been rumored to be looking at Retina displays for desktop applications as well, but a future Retina iMac would face a different set of issues, including the cost of the panel itself at such large sizes, as well as the immense graphics and connectivity needs to drive such a display.

In a statement to The Verge on the future of pre-loaded apps, AT&T today revealed that it is planning to offer FaceTime over cellular to all of its customers on any data plan by the end of 2013.

For video chat apps that come pre-loaded on devices, we currently give all OS and device makers the ability for those apps to work over cellular for our customers who are on Mobile Share or Tiered plans. Apple, Samsung and BlackBerry have chosen to enable this for their pre-loaded video chat apps. And by mid-June, we’ll have enabled those apps over cellular for our unlimited plan customers who have LTE devices from those three manufacturers.

Throughout the second half of this year, we plan to enable pre-loaded video chat apps over cellular for all our customers, regardless of data plan or device; that work is expected to be complete by year end.

When FaceTime over cellular was announced alongside iOS 6, AT&T initially restricted the service to its customers that subscribed to a Mobile Share data plan. AT&T soon expanded access, first to customers on a tiered data plan with an LTE device, and then to all customers with a tiered data plan regardless of device. Only customers with a grandfathered unlimited data plan were restricted from using the service.

AT&T plans to allow its unlimited customers with LTE devices access to FaceTime over cellular beginning in June, with full access to all customers becoming available by the end of the year.

Apple today released a statement [PDF] ahead of Apple CEO Tim Cook, CFO Peter Oppenheimer, and head of tax operations Phillip A. Bullock's appearances in front of the U.S. Senate Permanent Subcommittee on Investigation tomorrow.

In the seventeen page statement, Apple notes that it has created hundreds of thousands of jobs in the United States -- both directly and through suppliers and contractors. It notes that the company paid nearly $6 billion in federal taxes in fiscal 2012 and the company expects to pay $7 billion in 2013.

The company also says Apple "does not use tax gimmicks", pushing back against reporting in The New York Times that examined Apple's international tax strategies.

Apple, a California company, employs tens of thousands of Americans, creates revolutionary products that improve the lives of tens of millions of Americans, and pays billions of dollars annually to the US Treasury in corporate income and payroll taxes. Apple’s shareholders – from individuals and institutions to pension funds and public employee retirement systems – have benefitted from the Company’s success through the appreciation of its stock price and generous dividends. Apple safeguards the capital entrusted to it by its shareholders with prudent management that reflects the Company’s extensive international operations. Apple complies fully with both the laws and spirit of the laws. And Apple pays all its required taxes, both in this country and abroad.

Apple reiterates repeatedly that all of its financial activities are fully legal and in the best interests of its shareholders. The company says it supports comprehensive reform of the U.S. corporate tax system, instead proposing a new system that is "revenue neutral, eliminates all tax expenditures, lowers tax rates and implements a reasonable tax on foreign earnings that allows free movement of capital back to the US." Apple notes that this would likely result in the company paying even more in corporate tax, but supports it nonetheless.

The document includes an extensive history of the company, as well as fairly extensive details about Apple's corporate structure and tax practices, including details about Apple's sales and use tax payments ($1.3 billion in FY2012), state income tax payments ($830 million), and Apple's contributions to employer payroll taxes ($327 million).

It lays out Apple's network of foreign subsidiaries, including several located in Ireland which distribute 'active foreign, post-tax income as dividend payments within Apple's foreign corporate structure'.

Apple wants to make clear to the Subcommittee that the Company does not use its Irish subsidiaries or any other entities to engage in the following tax practices that were the focus of the Subcommittee’s September 20, 2012 hearing, entitled Offshore Profit Shifting and the US Tax Code. Specifically, Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US to avoid US tax, nor does it use revolving loans from CFCs to fund its domestic operations. Apple does not hold money on a Caribbean island, does not have a bank account in the Cayman Islands, and does not move any taxable revenue from sales to US customers to other jurisdictions in order to avoid US taxation.

The statement continues in some detail, examining Apple's various international holdings and how the company uses them to fund international expansion of retail stores and other investments.

It also notes that analysis of its decision to issue $17 billion in debt to fund share repurchases and dividends, rather than repatriating foreign earnings, "was in its shareholders' best interests".

Apple CEO Tim Cook and CFO Peter Oppenheimer will appear at 9:30AM Eastern time in front of the U.S. Senate Permanent Subcommittee on Investigation. The hearing, titled "Offshore Profit Shifting and the U.S. Tax Code - Part 2" will be in the Dirksen Senate Office Building. The subcommittee is attached to the U.S. Senate Committee on Homeland Security and Government Affairs.

Other witnesses at the hearing include tax policy experts from the IRS and the Department of the Treasury, as well as professors from Harvard and Villanova.

Note: Due to the political nature of the discussion regarding this topic, the comment thread is located in our Politics, Religion, Social Issues forum. All MacRumors forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Piper Jaffray analyst Gene Munster today released a brief report highlighting April data from market research firm NPD looking at Apple's U.S. Mac and iPod sales. The data shows Apple's Mac sales coming in flat year-over-year, and while Munster acknowledges that it has become increasingly difficult to extrapolate NPD's numbers to Apple's global sales performance, he views the latest data as "neutral to slight positive" relative to expectations for the company.

Based on the differences between NPD data and Apple reported Mac sales over the past few quarters, we note it is becoming more difficult to draw conclusions from NPD data (see table below). We note that some of the more recent supply issues with the redesigned Macs have impacted the Apple reported numbers over the past two quarters. At the end of the day, we believe this April data point is likely a neutral to slight positive given our expectation that iPads will continue to cannibalize Macs over the next few years.

Munster stands by his predictions of 5% year-over-year decline in Mac sales for the second quarter as customers await updated models and the PC market remains weak.

On the iPod side, Munster only briefly cites NPD data showing sales sliding 36% year-over-year, compared to the Piper Jaffray estimate of a 23% decline for the entire quarter on a worldwide basis. But with iPod sales now representing only about 2% of Apple's revenue, the impact of the continued decline in iPod sales as customers shift increasingly to smartphones will be negligible.

Apple's retail stores have been ranked as the U.S. retail chain with the highest sales per square foot for a number of years and according to a new report from Asymco’s Horace Dediu, the company also outranks competitors when it comes to revenue per visitor, hitting a record high of $57.60 per visitor in the first quarter of 2013.

Apple experienced a seven percent growth in visitors during the quarter, leading to an average of $13 million in revenue per Apple Store, which is the highest it has been during a non-holiday quarter.

During its Q2 financial results call, Apple reported a total of $43.6 billion in revenue with $5.2 billion in retail, up 19% from the previous quarter.

Apple gets an average of 250,000 visitors per store per quarter, up from approximately 170,000 visitors per quarter in 2010. In recent years, the company has been focusing on building new Apple Stores across the globe and expanding existing stores to increase available square footage. Apple plans to open 30 new retail stores in fiscal 2013 and remodel 20.

Digitimes briefly reports that Apple will be releasing updated notebooks "in the near future", with supply chain sources indicating that Apple's orders will rise 20% in the second quarter compared to first-quarter production.

The new MacBooks are only expected to receive specification upgrades to Intel's latest Haswell platform and are estimated to be unveiled at the Apple Worldwide Developers Conference (WWDC) in June, the sources said.

Claims of a 20% increase in orders come less than a month after the site claimed that orders would see a 10% increase for the quarter, although overall notebook shipments for 2013 are expected to be flat or only slightly higher year over year due to a lack of major updates and a weak PC market.

Late last month, KGI Securities analyst Ming-Chi Kuo reported that an update to the MacBook Air and MacBook Pro lines would be a highlight for next month's Worldwide Developers Conference (WWDC), which kicks off on June 10. Kuo had previously believed that Apple would consolidate its MacBook Pro lines into an all-Retina lineup in mid-2013, but he now believes that continued popularity of the non-Retina models has led Apple to push back its consolidation plans for the time being.

Kuo indicated that updated models of the non-Retina MacBook Pro and MacBook Air should ship relatively soon after WWDC, with updated Retina MacBook Pro models shipping somewhat later due to constraints on display production.

Digitimes reports that Apple will soon begin trial production on its fifth-generation iPad, with full production said to be planned to begin in July. Based on that schedule, Apple could hit monthly production of 2-3 million units by September as it prepares to launch the updated version of its full-size tablet.

The display of the new iPad, which will hit market shelves as early as September, will still be a 2,048 x 1,536 Retina display, the same as the one used in the 4th-generation model, except that the new display is built on a glass substrate of 0.2mm, thinner than the 0.25mm one for the 4th-generation device, the sources said, adding the new table will has a narrow bezel.

The touch panel solution for 5th-generation iPad is GF2 (1 layer of glass and two layers of ITO film) instead of G/G bonding used in 4th-generation iPad, the sources added.

The new iPad will use one LED light bar for backlighting, compared to two LED light bars used in 4th-generation iPad, the sources noted.

Kuo had previously predicted that production on the new iPad would ramp up in August or September, with shipments following soon thereafter.

Rumors of an iPad mini-like design for the next-generation iPad have been supported by leaked photos showing what was claimed to be the front bezel and cover glass for the device, as well as photos of the device's rear shell and cases said to be based on the product's design.

Previous rumors have also suggested that Apple would be able to use more efficient backlighting in the fifth-generation iPad, reducing the device's size both directly through eliminating one of the two backlight units and indirectly through allowing for a smaller battery.

Japanese blog Mac Otakara points to a pair of reports in today's edition of Taiwanese newspaper Economic Times addressing rumors surrounding Apple's smart watch effort. According to the first report [Google translation], Apple has begun sampling 1.5-inch OLED displays from RITEK subsidiary RiTdisplay.

The report also claims that RITEK's joint venture RitFast will be supplying the touch sensor technology for the watch.

Today's report echoes a December claim about Apple's plans for RiTdisplay's 1.5-inch displays and word that Intel is involved in Apple's effort, but includes a detail indicating that Apple had originally hoped to use a 1.8-inch display in the smart watch. That display, however, proved to be too large and the company shifted to the smaller 1.5-inch display size.

The second report [Google translation] offers an overview of the smart watch industry, with "market rumors" indicating that Foxconn has already received orders for Apple's smart watch. But with order volumes said to be around 1,000 units, the production run would clearly be a small-scale trial.

Rumors of an Apple smart watch ramped up in the months following that December report about Apple and Intel working together, with The New York Times later reporting that Apple was "experimenting" with curved glass smart watch designs and Bloomberg following up to claim that Apple has 100 product designers working on the project.

"iWatch" rumors peaked in February and March of this year amid claims that the device could launch "as soon as this year", but things have been relatively quiet for the past several months.

(Photo: HEX Vision Metal Watchband for iPod nano (6th Gen.))

Earlier today a report suggested that the launch of Apple's upcoming streaming music service deemed "iRadio" may be delayed due to difficult negotiations with Sony Music and Warner Music Group.

CNET is offering some additional information on Apple's trouble with Sony Music, explaining that the fees to be paid for skipped songs have become a point of contention between the companies.

Apple and Sony Music, the world's second largest music label, are still trying to hammer out details over how much Apple would pay for songs that people listen to a fraction of and then skip, according to people familiar with the negotiations.

While Apple's music service is said to be more similar to Pandora than Spotify, Apple does plan to deviate from Pandora's rigid station-based listening rules by giving users extended control, like the ability to rewind or skip a song after listening to a small portion of it. Pandora limits its users to 12 skips per day and pays the full royalty rate for each skipped track.

Apple has faced continual struggles over pricing during negotiations, originally offering to pay just half of Pandora's royalty rate while demanding more flexibility. The company later agreed to up its offered price, but it may not be willing to make further concessions as an Apple-branded music service offers additional perks that other music streaming sites can't compete with, such as an established market for purchasing streamed tracks.

The stalled negotiations between Apple and Sony Music are annoying other labels, who are eager to see iRadio launch. Apple finalized an agreement with Universal Music earlier this month and is close to signing a deal with Warner Music Group, according to CNET's sources.

That skipping has become an issue is frustrating executives at the other labels because they see Apple's free radio service as a potential boon for the music industry overall and are eager to help Apple get it launched.

Apple was pushing for a summer launch of iRadio, with possible plans to unveil the service at its annual Worldwide Developers Conference in June, but it is unclear if the company will be able to meet that deadline.

As noted by AppleInsider, MacBook Air supplies are beginning to dry up as Apple's annual Worldwide Developers Conference approaches.

Currently, the 13.3-inch 256GB 1.8Ghz MacBook Air is out of stock at Amazon.com, with a listed one to two month waiting period. While the low end 13.3-inch MacBook Air is in stock, the 11.6-inch MacBook Air is in short supply. Amazon lists an inventory of just ten 1.7Ghz 128GB 11.6-inch MacBook Airs and just one lower end 64GB 11.6-inch MacBook Air available through a third party.

Several other authorized Apple resellers, such as MacConnection, MacMall, and B&H, are also seeing dwindling MacBook Air inventory, with the higher end versions of 13.3-inch MacBook Air being the hardest to find.

Low inventory supplies at third-party Apple retailers are often one of the initial signs of an upcoming product refresh. According to KGI Securities analyst Ming-Chi Kuo, Apple will be introducing new MacBook Pro and MacBook Air lines based on Intel's Haswell processors at WWDC, which takes place next month from June 10 to June 14.

Last week, we noted that Apple was still struggling to convince the major music labels to sign on to its planned streaming service, informally dubbed "iRadio", with Sony and Warner reportedly holding out even after market leader Universal had agreed to Apple's revised terms.

In a new article highlighting how Google was able to announce its own music service ahead of Apple, The Verge notes that Apple's desire to provide a hybrid listener experience has meant more work at the negotiating table.

For starters, Google chose to offer a standard subscription music service very similar to those built by Spotify and Rdio, and that meant the terms had largely been established, according to multiple sources close to the talks. Apple, on the other hand, is pioneering a hybrid web and radio service — one that resembles Pandora but melds it with some on-demand features, the sources said. The licensing agreement had to be created from scratch.

According to the report's sources, number four music publisher BMG is also holding out against Apple's proposed terms, and while there still appears to be significant momentum behind iRadio and a desire by many parties to get a deal done as quickly as possible, it is now looking as though Apple may not be able to launch the service at next month's Worldwide Developers Conference (WWDC).

Word of Apple's plans for a Pandora-like service surfaced last September, with subsequent reports indicating that Apple was targeting the first quarter of this year for a launch. As negotiations continued to prove difficult, Apple shifted its focus to a summer launch, but it now appears unclear whether the company will be able to meet even that revised goal.

Following a report from earlier this month indicating that the U.S. Department of Defense was preparing to approve Apple devices running iOS 6 for use on military networks, Bloomberg now reports that the department has officially issued the authorization, opening the door for greater use of Apple's products.

The Defense Department said in a statement today that it has approved the use of Cupertino, California-based Apple’s products running a version of the iOS 6 mobile platform.

The decision eventually may spur a three-way fight for a market long dominated by Waterloo, Ontario-based BlackBerry. The Pentagon on May 2 approved Suwon, South Korea-based Samsung’s devices, as well as BlackBerry 10 smartphones and BlackBerry PlayBook tablets.

The report notes that out of more than 600,000 mobile devices used by the Defense Department, only about 41,000 of those are Apple products, with most of those not connected directly to the military's networks. With the new approvals, Apple and Samsung are expected to eat into BlackBerry's roughly 75% share of mobile devices within the agency.

As noted in the report earlier this month, the Department of Defense's approval of iOS 6 devices for sensitive applications is expected to have impact beyond the military, with other businesses requiring strict security standards becoming more likely to embrace Apple's products.

Pentagon approval for iOS 6 devices comes just as The Street reports that the U.S. Air Force is expecting to save more than $50 million over ten years following last year's decision to replace thousands of pages of flight manuals with iPads.

"By removing all that paper, [Air Mobility Command] will capture about $750,000 in fuel savings [annually] just based off the decreased weight," said [electronic flight bag program manager Major Brian] Moritz.

Removing the need to print and distribute thousands of flight manuals, however, equates to an even greater cost saving. "It comes out to just over $5 million a year," noted Moritz. "With fuel savings, it comes out to $5.7 million annually in pure cost. When you look at $5.7 million a year, over 10 years, that's well over $50 million."

The Air Force is not the only group switching to iPads to replace traditional flight bags used by pilots, as a number of commercial airlines have also begun transitioning to the technology in order to reduce weight and therefore fuel costs, as well as lighten loads for the pilots themselves.

Update: Apple has provided a comment on the Pentagon approval to AllThingsD:

“With iPhone and iPad being tested or deployed in almost every Fortune 500 company, Apple continues to scale across enterprise with nearly 30,000 companies globally developing and distributing iOS apps for corporate use by their employees,” Apple spokeswoman Trudy Muller told AllThingsD. “The FIPS 140-2 certification and STIG approval demonstrate our ongoing commitment to deliver a secure platform to our enterprise and government customers around the world who deploy iOS devices on their networks.”

(Photo: James Rogers/The Street)

Corning yesterday announced (via Engadget) the launch of its latest glass substrate for LCD and OLED displays, Lotus XT Glass. While Corning is famous for its Gorilla Glass used by Apple and other device manufacturers to provide durable covers for their displays, substrate glass like Lotus Glass is used within the displays themselves to support the transistors and other components necessary for the displays to function.

The Corning Lotus Glass platform enables organic light-emitting diode (OLED) displays and liquid crystal displays (LCD) that use either low-temperature poly-silicon (LTPS) or oxide thin-film transistor (TFT) backplanes. The result is an energy-efficient, immersive display device that features high resolution, fast response times, and bright picture quality.

Lotus XT Glass, an improved version of the original Lotus Glass announced in late 2011, offers improved thermal characteristics and stability to help increase efficiency and yield during display production. Lotus XT Glass is available in a variety of thicknesses ranging from 0.4 to 0.7 mm to support various applications.

In an introductory video, Corning vice president John Bayne outlines how Lotus XT Glass will enable better displays with improved yields:

Our customers, the panel makers, are basically making thin-film transistors and aligning those transistors with liquid crystal material and a color filter piece of glass. Everything has to line up just right to work.

The distance features move during processing is called total pitch. And if you measure that from sheet to sheet, it's called total pitch variation. If panel makers can minimize total pitch variation, they can realize higher manufacturing yields and lower costs. In addition, they can design devices that have higher aperture ratios which are brighter and use less power.