Neil Hughes
Apple's spending on research and development surged year over year by another $500 million last quarter, reaching $1.9 billion and growing to 3.3 percent of the company's total net sales.
The investments made by Apple into future products, revealed as part of its 10-K filing with the U.S. Securities and Exchange Commission this week, were up from $1.4 billion a year ago. That's a year over year increase in spending of nearly 36 percent.
Apple said the growth in R&D expense during the second quarter of its fiscal year 2015 stemmed from "an increase in headcount and related expenses, including share-based compensation costs, and material costs to support expanded R&D activities."
Apple Chief Financial Officer Luca Maestri was asked about his company's spending on research and development during this week's quarterly earnings conference call. Analyst Katy Huberty noted that R&D spending continues to track "well ahead" of the company's revenue growth.
In response, Maestri noted that Apple's current product portfolio has grown significantly in recent years to include two iPhone models, two iPads, and the Apple Watch.
Maestri also indicated that Apple is developing "core foundational technologies" in-house, whereas in the past the company might have outsourced such projects. And of course Apple is also investing in future products that it has in the pipeline, and that development carries considerable costs.
"Research and development is the core of the company. Innovation is the core of the company," Maestri said.
The $1.9 billion Apple spent last quarter matches the investment the company made in the preceding December quarter. Thus far in fiscal 2015, Apple has spent nearly $1.1 billion more than it did during the same six-month span in fiscal 2014.
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16 Comments
I can't see how a new ?TV box or iPad "pro" would drive up R&D costs by $500M in one quarter. Unless Apple is spending a shit load of money buying up exclusive content. I suppose it could be iCloud related but I really believe those car rumors are much more than just rumors. Tim & Co. know having 70% of revenue tied to one product is dangerous but iPhone is such a big revenue driver there's no way services revenues alone could ever drive significant revenue growth. So if has to be something big.
[quote name="Rogifan" url="/t/186064/apple-spending-on-research-and-development-swells-again-to-1-9-billion#post_2718242"]I can't see how a new ?TV box or iPad "pro" would drive up R&D costs by $500M in one quarter. Unless Apple is spending a shit load of money buying up exclusive content. I suppose it could be iCloud related but I really believe those car rumors are much more than just rumors. Tim & Co. know having 70% of revenue tied to one product is dangerous but iPhone is such a big revenue driver there's no way services revenues alone could ever drive significant revenue growth. So if has to be something big.[/quote] Exactly. R&D costs are significant for new products. For comparison, in the 1990's Chrysler spent 2.3 billion developing the new 1996 minivan models, and Ford spent nearly three billion on the 1996 Taurus/Sable redesign. Both of those reused some components from the prior model though; the Mondeo/Contour project cost six billion (largely due to cost overruns, bad management, etc). A new Apple TV costs a few million at most.
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Don't forget all those custom chips Apple is making now. I'd guess that's where the bulk of this money is going. Battery tech might be another area they're throwing money towards.
[quote name="TheWhiteFalcon" url="/t/186064/apple-spending-on-research-and-development-swells-again-to-1-9-billion#post_2718246"] Exactly. R&D costs are significant for new products. For comparison, in the 1990's Chrysler spent 2.3 billion developing the new 1996 minivan models, and Ford spent nearly three billion on the 1996 Taurus/Sable redesign. Both of those reused some components from the prior model though; the Mondeo/Contour project cost six billion (largely due to cost overruns, bad management, etc). A new Apple TV costs a few million at most.[/quote] Yep. Last year at a WSJD conference Tim Cook said the iPhone would be Apple's main revenue driver for the next 5 years. The executive team has to be thinking about what comes after iPhone. Watch, ?TV, streaming music ?Pay, are all good but not the revenue drivers iPhone is. A $349 watch or $99 TV box will be difficult to meaningfully grow a $200B revenue base.
Apple should spend some of that money improving the text-related features of OS X. Those features virtually untouched since 10.2. For many of us, that wastes hours of our time each week. Needs included: 1. Support of epub as solid as that for pdf. 'New World' mobile devices display pdfs poorly. They need epub as badly as desktops needed pdf in the 'Old World' of the 1990s. Apple got that previous shift right. Why is it dragging its feet with epub? 2. Meaning or syntactically related document transfers rather than appearance-related. Again, that is a necessity with New World mobile devices. In the Old World, a document on a computer screen translated easily to a printed page. In the New World, it doesn't. What works on a 24-inch screen (font-size etc) looks awful on a mobile device. Documents should move with their meaning intact, so for instance an appropriate-appearing first-level heading in a printed office memo becomes an appropriately styled one on an iPhone 6. Implementing that will also make epub support easier. 3. A much improved spell checker and spelling suggestions. The current one is awful. Either give the Hungarian Hunspell group that created it sufficient money to improve it or spend sufficient millions (pocket cash to today's Apple) to improve it in house. And for goodness sake, buy the continually updated rights to a top-of-the-line, professional spelling vocabulary. I edit scientific documents. The current dictionary knows few words above the college sophomore level. Also make smart enough to know not just a legitimate spelling but the preferred one. Pay special attention to getting hyphenation right. OS X's spell checker is so stupid, it literally thinks any two legitimately spell words connected by a hyphen is also correct. Sorry, but "quickly-go" is not correct English spelling. Apple's current spell checker makes many Apple users look illiterate. Fix that. 4. Word had named paragraph and text styles back in the late 1980s. Apple's pitiful implementation of RTF still doesn't have that. Doing named styles right (i.e. better than Microsoft has done it since Word 5.1) would mesh quite well with items #1 and #2. Again, to work with Old World desktops and New World mobile devices the meaning of a block of text is what matters not its font size, color, etc. The latter is based on the screen-to-print technology of the late 1980s. It's woefully out of date today. 5. GREP is a marvelous time-saver. Build a well-done, user-friendly version into OS X, so a host of text apps can not only use it, but share various search-and-replace routines between apps and users (getting around the messiness of knowing how to code GREP). Most of the GREP code is open source, so implementing will just involve something Apple does well, creating a clever UI. Do that, and you'll make a lot of people happy, particular the very substantial number who work with words.