AppleInsider StaffEven while Apple's revenue has skyrocketed in recent years — and even as expectations for future products and success have exploded — what the company has spent on R&D has risen only modestly, Troy Wolverton reports for TheStreet.com.
As a portion of overall sales, such expenses have actually fallen by more than half, Wolverton wrote. Based on an analysis of recent SEC filings, last year Apple spent 3.8 percent of sales on development, and just 3.2 percent in its most recent fiscal quarter.
Still, Apple hasn't really cut R&D spending. According to Wolverton, the company spent $534 million on development in fiscal 2005, which was 24 percent more than it spent in fiscal 2001. However, he says the company has clearly been constraining the growth of development spending.
While sales have grown at a compounded annual rate of 27 percent over the last four years, R&D spending has grown at an average rate of just 5.6 percent per year over that period, the journalist notes.
"At some point, that reaches stasis," Crawford Del Prete, an analyst with industry research firm IDC, told TheStreet.com "They can't take it down to 1.5 percent or 2 percent of revenue."
Already, Apple is reportedly being vastly outspent by its rivals. Both in dollar terms and as a portion of its revenue, Apple's R&D budget is said to be a fraction of that of competitors Hewlett-Packard, Sony and Microsoft. And unlike its rivals, Apple has to bear costs that many of its competitors don't, such as operating system development.
On the other hand, many analyst point out what's important is not how much a company spends on R&D but how well it spends it. "And for most of those analysts, Apple is a good example of a company that gets a lot of bang for its R&D buck," Wolverton wrote.
"You look at what Microsoft is spending on R&D and I guarantee there's wasted money there," said Roger Kay, founder of consulting firm Endpoint Technologies. "Look at what they've produced. It's not controversial that they haven't turned out 10 times as many great products as Apple."
A detailed breakdown of Apple's R&D spending, and comparisons to its competitors spending, are offered in the lengthy TheStreet.com piece.
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Apple is in no danger of losing its innovation run if history is any indicator. Check out
this recent graph - increase in R&D spending has no correlation to sales growth.
It's the people and how the company is run from the ground up that makes the difference.
I wouldn't really call it a "detailed breakdown." What would be interesting would be if they gave the R&D costs of OS X (and maybe iLife). Given the ~$500 million figure they cite, I'm guessing the OS X costs alone must be $250 million or less, which implies it's basically under $50/Mac (5 million Macs shipped per year right now). This is similar in cost to a Windows XP Home/Vista Home Basic OEM license, and significantly less than a Vista Home Premium license will cost. The "Windows tax" is going to become a progressively larger portion of Wintel PC costs going forward.
Like the article says, R&D is growing healthily in absolute terms, it's just that sales have exploded in the last three years, so as a % of sales it looks lower. The fact that costs haven't scaled with sales doesn't surprise me, and most analysts should consider it a GoodThing(tm). SJ runs a tight ship. The first thing he did when he became iCEO was to rein in costs and return Apple to a regular (albeit tiny) profit. He's not going to party-like-its-1999 when sales pick up.
The 900-lb gorilla hiding in the closet, though, is that fact that most of Apple's recent sales growth is due to the iPod. The iPod has been as close to a printing press as any non-monopolist could dream of. And the iPod doesn't require an enormous continuing investment in R&D. They probably spend less R&D on the iPod than on any one of their Mac lines.
What would be interesting would be if they gave the R&D costs of OS X (and maybe iLife). Given the ~$500 million figure they cite, I'm guessing the OS X costs alone must be $250 million or less
The only number I've seen was back around Tiger's release, when an analyst estimated its development costs at $100-200M. I wonder if it's an understatement, though, since so much R&D must go into core technologies that aren't necessarily release-specific, and it probably doesn't include iLife, etc. Since software development isn't capital-intensive (in the old-fashioned sense) I wonder if there's any way to find out how many software people Apple employs?
Mac OS X probably doesn´t cost as much to develop as it did three years ago, so my guess is some funds have shifted.
Besides how do you think the iPod would have looked like if the R&D had been twice as much? Probably something like the Origami project. Each person wants his own button...