Apple ramps up spending on R&D
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Aug. 20- As rumors swirl about new Apple products that may be on the way, one thing is for sure: The company is doubling down on R&D.
The Cupertino, Calif.-based company has shifted research and development into overdrive this year, spending $1.6 billion in the third quarter, up 36 percent from the same period last year. At this rate, Apple's spending will be up 60 percent year-over-year by the fourth quarter, according to a Morgan Stanley report released this week.
Investors and tech junkies watch closely for any hints about Apple's highly anticipated product launches. Coming four years after Apple last entered a new product category with the iPad, the spike in R&D spending suggests that Apple has much more in store than a new version of one of its signature devices, analysts say.
"This shows that they intend to make good on their implicit promise of life after iPhones and iPads," said John Jackson, a research vice president at IDC. "There are big bets in the wings."
But analysts diverge on how close to launch the products may be. In light of the R&D spending spree, Morgan Stanley analyst Katy Huberty predicted in her report that Apple will soon enter a new product category, noting that the company ratcheted up its R&D spending before launching the iPod, iPhone and iPad. Indeed, Apple is now devoting 4 percent of its revenue to R&D, a level it has not reached since shortly before the original iPhone's 2007 release.
Still, R&D is a long game, and a hike in spending does not necessarily mean a product launch is imminent, analysts say. With little visibility into Apple's labs, it is impossible to know whether the company has boosted spending to polish off a mature product or to explore a nascent idea, said Roger Kay of Endpoint Technologies Associates.
Apple CEO Tim Cook "has the luxury of a little bit of time and a whole lot of money to incubate what's next," said Jackson, the analyst.
Even with the upswing, Apple's R&D spending is still modest by some measures. Computer and electronics companies generally devote 6.5 percent of their revenue to R&D, according to a 2012 study by consulting firm Booz & Co., and some spend much more. Microsoft, for one, has allocated 13 percent of its revenue for R&D each of the past three years, according to filings with the Securities and Exchange Commission.
Apple is known for its efficient R&D, analysts say. While it is costly to pioneer a new product, Apple has not had to spend huge sums in years when it merely updated its existing devices, Jackson said.
"They are masters of incremental innovation," he said.
Apple's slim lineup of products also helps keep costs down, said Tom Mainelli, a program vice president at IDC.
"They don't have a thousand irons in the fire," he said.
Apple has also had a year of blockbuster acquisitions, another tool companies can use to boost innovation. In the first three quarters of this year, Apple spent $898 million in cash to buy firms, almost twice the total of recent years, according to Morgan Stanley. The expenditures can also be seen as hallmarks of Cook's leadership, Mainelli said.
"It's a reflection of Tim Cook making this his company and basically pulling all the levers," he said.
The Cupertino, Calif.-based company has shifted research and development into overdrive this year, spending $1.6 billion in the third quarter, up 36 percent from the same period last year. At this rate, Apple's spending will be up 60 percent year-over-year by the fourth quarter, according to a Morgan Stanley report released this week.
Investors and tech junkies watch closely for any hints about Apple's highly anticipated product launches. Coming four years after Apple last entered a new product category with the iPad, the spike in R&D spending suggests that Apple has much more in store than a new version of one of its signature devices, analysts say.
"This shows that they intend to make good on their implicit promise of life after iPhones and iPads," said John Jackson, a research vice president at IDC. "There are big bets in the wings."
But analysts diverge on how close to launch the products may be. In light of the R&D spending spree, Morgan Stanley analyst Katy Huberty predicted in her report that Apple will soon enter a new product category, noting that the company ratcheted up its R&D spending before launching the iPod, iPhone and iPad. Indeed, Apple is now devoting 4 percent of its revenue to R&D, a level it has not reached since shortly before the original iPhone's 2007 release.
Still, R&D is a long game, and a hike in spending does not necessarily mean a product launch is imminent, analysts say. With little visibility into Apple's labs, it is impossible to know whether the company has boosted spending to polish off a mature product or to explore a nascent idea, said Roger Kay of Endpoint Technologies Associates.
Apple CEO Tim Cook "has the luxury of a little bit of time and a whole lot of money to incubate what's next," said Jackson, the analyst.
Even with the upswing, Apple's R&D spending is still modest by some measures. Computer and electronics companies generally devote 6.5 percent of their revenue to R&D, according to a 2012 study by consulting firm Booz & Co., and some spend much more. Microsoft, for one, has allocated 13 percent of its revenue for R&D each of the past three years, according to filings with the Securities and Exchange Commission.
Apple is known for its efficient R&D, analysts say. While it is costly to pioneer a new product, Apple has not had to spend huge sums in years when it merely updated its existing devices, Jackson said.
"They are masters of incremental innovation," he said.
Apple's slim lineup of products also helps keep costs down, said Tom Mainelli, a program vice president at IDC.
"They don't have a thousand irons in the fire," he said.
Apple has also had a year of blockbuster acquisitions, another tool companies can use to boost innovation. In the first three quarters of this year, Apple spent $898 million in cash to buy firms, almost twice the total of recent years, according to Morgan Stanley. The expenditures can also be seen as hallmarks of Cook's leadership, Mainelli said.
"It's a reflection of Tim Cook making this his company and basically pulling all the levers," he said.
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