Apple’s investments outside R&D spur innovation

ZDNet just published a story claiming Apple’s percentage of revenue has “been on the decline for years”. The story claims that percentage is currently 2.2 percent of sales which seems pretty low compared to other technology players (especially when Apple is so innovative).

But this isn’t factoring in how items such as a reported $200 million investment in Siri technology, a new CEO, and investments in the company’s 175-acre Spaceship campus contribute to overall growth…

Thanks to commenter Glenn who points out this perfect quote from Steve Jobs:

“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” — Steve Jobs, Fortune, Nov. 9, 1998

While it might be true Apple’s “R&D spending has been sliding as a percentage of revenue for years”, their revenues have consistently been on the steep incline:

It’s also notable that some of the company’s biggest investments contributing to revenues, innovation, and overall growth aren’t necessarily considered research and development on the books.

Apple’s purchase of Siri last year (for a rumored $200 million) is arguably the biggest investment into R&D the company has made, an investment that isn’t considered research and development, but rather mergers and acquisitions. The flagship feature of the new iPhone 4S and possibly one of the biggest advancements ever for AI in a consumer product, the Darpa funded personal assistant is ten years in the making, and an investment that doesn’t count towards Apple’s R&D costs. However, it does and will continue to contribute to innovation in Apple’s products and as a result increased revenues and growth (see best iPhone launch yet).

Another massive investment that Apple is in the process of making is in their new ‘Spaceship’ campus, again, something that isn’t considered R&D, but a huge investment in the company’s ability to innovate and spend on research and development going forward. On top of a couple R&D buildings, when Jobs unveiled plans for the Spaceship he noted it would facilitate a 40% increase in employees, up to about 13,000 by 2015. That’s a lot of room to grow, and a huge investment that will allow for future investments in R&D.

Newly appointed CEO Tim Cook might also contribute to the company’s overall R&D strategy going forward. Is it possible Cook’s operations-focused approach, that has certainly done the company well during his ten years as head of worldwide sales and operations, take away focus from grassroots R&D, and maybe instead shift focus towards acquisitions and supply chain investments? Sure.

But we wonder the significance of such a low R&D expenditure as a percentage of revenue, as it would be hard for any company to keep up with revenues growing as quickly as Apple’s. This is why it probably isn’t fair to compare Apple’s R&D as a percentage of revenue to other companies who aren’t putting up nearly the same sales numbers and still seen as falling behind Apple in innovation. Last time we checked in, Apple was experiencing another record quarter with revenue of $28.57 billion (up 82 percent) for the June quarter. We will certainly learn more about exactly how revenues are looking on October 18 when Apple holds their Q4 earnings call.

Related articles

• Apple already spent $750 million on the iCloud building alone? (9to5mac.com)