Mikey Campbell
As iPhone sales show signs of stabilizing after a first every contraction earlier this year, Apple continues to incrementally increase spending on research and development in search of the next big thing.
Announced during Tuesday's investor conference call covering the third quarter, and further detailed in a Federal Trade Commission filing today, Apple spent $2.56 billion on R&D operations this past quarter, representing six percent of total net sales.
By comparison, last year's third quarter R&D spend topped out at $2.03 billion, or four percent of total net sales. The more than $500 million jump has become somewhat of a routine for the company, which in the second fiscal quarter boosted R&D activities by $600 million. Apple's focus on future products has driven a nine-month outlay of $7.48 billion, up from $5.85 billion in the year ago quarter.
That Apple is increasing spending in this area should come as no surprise. Technology companies are in the business of delivering cutting edge products and services solutions to consumers, goods that are often in development for months or years. As one of the most successful tech firms in the world, Apple's process is no different. While not a hard and fast rule, R&D spend as function of revenue is consistently higher in the tech sector than other major industries.
As usual, Apple remains tight lipped on future plans, but CEO Tim Cook did drop a few hints as to where the company is moving during yesterday's conference call. Notably, Cook discussed Apple's investment in Chinese Uber competitor Didi Chuxing, saying the partnership will offer valuable perspective on the important Asian market. The Didi mention in particular raised eyebrows as Apple is widely rumored to be working on an automotive initiative dubbed "Project Titan." As a secret product, Titan's budget is unknown, though some speculate a large engineering team and facilities account for a good chunk of Apple's R&D spend.
Cook also confirmed investments into augmented reality technology, saying that while AR might not be the "next computing platform," it has huge potential. Apple is thought to be setting aside resources for near-term consumer AR products, specifically apps and app development, not AR/VR hardware like products offered by Google and Facebook.
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13 Comments
R&D is an interesting cost center for a business.
The superficial answer to all questions about investing in R&D is, "sure, invest as much as you can into research and development," yet we've seen time-and-time again where unfocused and unfettered skunkworks projects tend to lead nowhere and create a huge amount of waste for a company.
On a rare occasion, you get an experiment that leads nowhere, just to come to fruition many years or even decades later, like with Apple announced their Siri service built-into their iPhone which made Google say, "Hey! We can copy that and do it better [in many ways] because we of all the experiments we did with GOOG-411 years prior" to create Google Now, or how Apple asked Intel for a Small Form Factor (SFF) Ulta-Low-Voltage (ULV) chipset and processor for a new class of ultralight notebooks they were creating, which Intel had already designed but hadn't put into production and which revitalized the notebook sales with their Ultrabook branding, or how Jobs called up Corning's CEO to see if they had any glass that would work for a thin phone and be impact resistance.
When Apple (and a plethora of startups) were out-innovating the market with only a small R&D budget, compared to ridiculously large R&D budgets from MS and other mainstays, we saw what a clear vision and a solid business plan can do for a company. What I really hate to see is the desperate maneuvers to force R&D into a unfinished products before a good idea is ready (Palm) and/or before a company has figured out a solid direction (Samsung and Blackberry).
I'd be surprised if Apple was not working on AR hardware. I'd also be surprised if they did anything like Oculus, HTC, Samsung, etc. In other words, I can't see them making a plastic box for anyone's face.
Here apple. Let me save you some money on R&D. Get the latest processor and graphics card and put it into the Mac Pro case. There... It took one person 10 seconds and $0 to come up with that brilliant idea. Maybe they can spare one of their hundred thousand plus employees a few hours to do that instead of pissing off and losing more of your pro buyers every day you wait.