Apple's R&D spending hits bottom as percentage of revenue

Apple's R&D spending hits bottom as percentage of revenue

Summary: Apple's research and development spending as a percentage of revenue has been on the decline for years. Apple doubled down 2000 through 2005 and is harvesting the returns now.

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Guess what Apple's research and development spending is as a percentage of revenue? Chances are your answers are so far off that Apple's R&D spending could be a drinking game.

If you ask a few friends you're likely to get guesses anywhere from 4 percent to maybe 10 percent or so. The real answer: R&D represents 2.2 percent of sales.

The point is worth pondering as Apple preps its fiscal fourth quarter earnings on Tuesday. For the nine months ended June 25, Apple's R&D spending was $1.78 billion, or 2.2 percent of sales.

And we scream that HP isn't innovative for spending 3 percent of sales on R&D spending. The figures, which were found doing some research, highlights how Apple's R&D spending has been sliding as a percentage of revenue for years. Granted, Apple's revenue has been growing so quickly that it would be nearly impossible to keep up its R&D spending as a percentage of revenue without just throwing money away, but the spending levels are notable.

Note that Apple's R&D spending is increasing, but not at a pace to keep up with revenue.

For comparison's sake:

  • HTC spends 3.83 percent of revenue on R&D as of June 30, down from 5.23 percent for the same period a year ago.
  • Microsoft spent 13 percent of revenue for fiscal 2011, down from 14 percent in fiscal 2010.
  • Dell spent 1 percent of revenue on R&D for fiscal 2011.
  • Google spent 14 percent of revenue on R&D for the nine months ended Sept. 30.
  • IBM has spent 6 percent of revenue on R&D for years.
  • For the nine months ended July 31, HP spent 2.5 percent of revenue on R&D.

Here's a look at Apple's trend:

  • Today: R&D is 2.2 percent of revenue.
  • Fiscal 2010 R&D spend: 2.7 percent of revenue.
  • Fiscal 2009 R&D spend: 3.1 percent of revenue.
  • Fiscal 2008 R&D spend: 3.4 percent of revenue.
  • Fiscal 2007 R&D spend: 3.3 percent of revenue.
  • Fiscal 2006 R&D spend: 3.7 percent of revenue.
  • Fiscal 2005 R&D spend: 4 percent of revenue (restated).
  • Fiscal 2004 R&D spend: 4 percent of revenue (restated).
  • Fiscal 2003, 2002, 2001 R&D spend: 8 percent of revenue.
  • Fiscal 2000 R&D spend: 5 percent of revenue.

The larger question here is what is Apple doing to wring so much return out of its R&D spending. A few thoughts:

  1. Apple may have a relatively small product team.
  2. Apple doesn't engage in fundamental research like an IBM would.
  3. The company is focused on software and industrial design where the innovation may not require a lot of R&D spending.

In any case, Apple's R&D spend as a percentage of revenue is worth watching going forward. The company obviously stepped up its R&D game in the early part of the last decade and is harvesting the returns in 2011.

Topics: Emerging Tech, Apple, Banking, Enterprise Software

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  • RE: Apple's R&D spending hits bottom as percentage of revenue

    Or Apple has very good cost control of it's R&D spend, it doesn't have to scale exactly with revenue.<br><br>Pfizer's 2010 revenues were $67.8bn (R&D $9.4bn), however they have found out that just throwing money at research doesn't necessarily produce results and are drastically reorganising R&D departments to cut costs, as are most of the major IP pharma companies.<br><br>Spend your R&D budget in a good cost concious way at the right projects.
    Alan Smithie
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @Alan Smithie

      The worst thing you can do is think of R&D purely as project directed.

      I'm not saying that Pfizer didn't waste money. I've been in their facilities.

      But too many companies don't put aside a bit of the their R&D spending purely into the serendipity side of research. The discoveries that change our lives (or businesses) are very often not what we went searching for because we didn't recognize there was a problem or that we had a solution. Viagara and Post-It notes come to mind immediately as products that failed at their intended purpose. AT&T's development of the transistor didn't begin as a project to design a replacement for vacuum tubes but instead as general research. Today Google giving their researchers free time for pet projects come to mind.

      If I had to guess from my limited experience with the company, Pfizer's problem wasn't spending on R&D; it's that they emphasized research trying to solely to hit new home runs and likely ignored many, many simpler problems to solve that could produce tidy profits for company with a lower cost structure then Pfizer.

      Spend the money wisely, but also recognize that some portion of R&D money should be budgeted simply to general exploration that can't be traced to a specific budget code.
      Dal90
      • RE: Apple's R&D spending hits bottom as percentage of revenue

        @Dal90 <br><br>I work for an unamed international Pharma that had four major late stage failures in a row even though the early warning signs were there with the products, eg raised liver enzymes (yeh try getting that passed the FDA !) but hey ho they ploughed on regardless.<br><br>It's knowing when to terminate and cut your losses.<br><br>It costs over $1bn to bring a drug from concept to market, that's some investment to flush down the toilet at late stage.
        Alan Smithie
  • RE: Apple's R&D spending hits bottom as percentage of revenue

    Yea but Apple isn't really a company that spends money on the so-called "innovation" department, they really spend more on the research of design elements and marketing of their product. Not saying it to be a fanboy monger or what not but there is truth in it. I can't obviously go by nothing other than my assumptions but I'd assume their R&D would be significantly smaller as their focus are on patent purchasing, license arrangements, advertising and focus groups.
    Evo_7
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @Evo_7

      Focus groups?
      msalzberg
  • RE: Apple's R&D spending hits bottom as percentage of revenue

    Apple probably has spent more of its revenue on brainwashing consumers than R&D, and it JUST WORKS.
    yoroto
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @yoroto
      Yes! That's it. Let it go, man.
      dhmccoy
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @yoroto absolutely true
      tejainece
    • take a day off

      @yoroto
      get some rest
      oneleft
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @yoroto says it's true so that must make it true. Everything @yoroto ever says is always true so we must believe all things @yoroto
      ScorpioBlue
      • RE: Apple's R&D spending hits bottom as percentage of revenue

        @toddybottom<br>Actually, he demonstrated some understanding of common accounting rules that all companies follow. If other companies didn't follow them they would be lying. Are you implying those other companies are lying? That is a very serious charge.
        anono
      • RE: Apple's R&D spending hits bottom as percentage of revenue

        @anno<br><br>Did you know posts change here on this website between expanded view and the regular view? In expanded view, toddytroll's posts have disappeared.<br><br>lol...
        ScorpioBlue
  • $1.8 billion of R&D is gross *overestimation* of Apple's R&D spendings

    Even if you will assume that average R&D salary at Apple is $7500 per month (what is big overestimation for *average* wage), then still Apple would have to have 20000 people working for R&D full year to actually spend these $1.8 billion.<br><br>It is not technically possible, since all of non-store Apple's staff is less than 20000 people (they have about 50000 total, with retail segment included).<br><br>Only few thousand people are actually engaged in the R&D. This means that <b>level of R&D spendings are times lower, about $0.5-1 billion.</b>
    DDERSSS
    • RE: Apple's R&D spending hits bottom as percentage of revenue

      @DeRSSS

      There's a lot more to R&D than just salaries. Do you think Jony Ive's hardware designs go directly from paper to production line?
      msalzberg
      • The cost of equipment and raw materials for model building are ridiculously

        @msalzberg: ... low comparing to the salaries.

        For example, Apple spent over $100 million to create huge multi-room antenna testing laboratory. This was years ago and now they only cover comparably small maintenance costs.
        DDERSSS
      • Don't argue with DeRSSS

        @msalzberg
        He has a lot of inside information about Apple and he will dizzy you with specs that you couldn't make up if you tried.
        toddybottom
      • RE: Apple's R&D spending hits bottom as percentage of revenue

        @DeRSSS

        If Apple reported $1.8 billion in R&D on their SEC forms, that's what they spent.
        msalzberg
      • Beyond salaries, it is tricky accounting/balance matter

        @msalzberg: ... it is hard to compare different R&D spendings due to complex variety of methods how companies account and ascribe expenses (rent, property tax, capital, amortization).

        The only applicable way to compare different companies' R&D activity is to count how many people they actually engage in it, and this is more accurate way to estimate R&D expenses. However, this statistics does not go to SEC filing, which only is about financial and tax accounting.

        This is why companies have management accounting, cost accounting and fund accounting, which show actual, commercial secret statistics of the company. This is why I said actual Apple's R&D are way smaller than listed for SEC.
        DDERSSS
      • DeRSSS just accused Apple of lying to the SEC

        @msalzberg
        That is a very serious charge.
        toddybottom
      • RE: Apple's R&D spending hits bottom as percentage of revenue

        [i]Microsoft spent 13 percent of revenue for fiscal 2011, down from 14 percent in fiscal 2010.[/i]

        And what's it got them? A silly misfired hybrid called Windows 8?
        ScorpioBlue