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

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.