​The Apple TV lesson: You can't hurry R&D, you'll just have to wait

To paraphrase the Supremes, R&D can't be hurried and it's a game of give and take. Apple tells Icahn to cool his jets over an Apple TV, which reportedly was scrapped.

The funny part about Apple's success is that customers, shareholders and sometimes even employees think there's a magic formula that will roll out groundbreaking products with a steady predictable and assembly line cadence.

Let's paraphrase the Supremes: You can't hurry R&D. You'll just have to wait. R&D don't come easy...

And sometimes you just have to scrap the product that everyone and their mom thought Apple was going to release: The Apple TV, also known as the most famous product never launched.

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The R&D lesson---and Apple's discipline---is worth noting as the latest Carl Icahn-Apple skirmish. In YALTA (yet another letter to Apple), Icahn praises Apple's share buybacks and dividends and then goes through the rationale why shares are undervalued. One big reason is the Apple TV. Icahn noted:

While we respect and admire Apple's predilection for secrecy, the company's aggressive increases in R&D spending (and some of the more well-supported rumors) have bolstered our confidence that Apple will enter two new product categories: television and cars. Combined, these two new markets represent $2.2 trillion, three times the size of Apple's existing markets (if we exclude Apple Watch).

Excluding advertising, the addressable market for television is approximately $575 billion, which is larger than the smartphone market. Also, given that people spend an average of 12% of the day watching TV (equating to 25% of their free time), we view television's role in the living room as a strategically compelling bolt-on to the Apple ecosystem. In addition to an Ultra High Definition television set, we expect Apple to launch a related suite of tiered products and services, including a "skinny bundle" of pay-tv channels (partnered with various media companies) and an updated Apple TV microconsole (which will continue to service the massive install base of televisions offered by other OEMs). This will enable Apple to pursue the entire market by offering multiple products at various price points across the demographic spectrum.

Bam! Apple is worth a zillion dollars in a few years. Icahn is worth nearly as much. Hooray!

Cue the leak to the Wall Street Journal trick to tell Icahn to cool his jets. The Journal, citing people familiar with the matter (like Apple), reported the company scrapped its plans for a TV set. Why?

Apple didn't have enough breakthrough features to warrant entry to the TV market. And cars? Who knows?

The takeaway here is that Icahn is using the same techniques---believing Apple can continually enter new categories---to justify a stock price.

But R&D is trickier than that. Apple will have its flops. And Apple will invest in research that'll never make it to market. R&D success doesn't march to Wall Street's cadence---or even Apple's.

Here's a look at Apple's R&D spending as percentage of revenue via the company's SEC filings.

Apple 10-K
Apple 10-K
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