Apple skimping on research and development?

“With its sleek iPod nano and all-in-one iMac computer, Apple is often perceived by its fans as a pre-eminent innovator,” Troy Wolverton writes for TheStreet.com. “It may come as a surprise, then, that much of the company’s recent financial — and stock — success has resulted from merely holding the line on one of the sources of that innovation: its spending on research and development.”

“Even while Apple’s revenue has skyrocketed in recent years — and even as expectations for future products and success have exploded — what the company has spent on R&D has risen only modestly. As a portion of overall sales, such expenses have actually fallen by more than half,” Wolverton writes. “Though analysts generally praise Apple for its frugality, some warn there’s a limit to how much longer the company can squeeze juicier near-term profits out of its R&D line.”

“Although there’s no hard-and-fast rule for what portion of its budget a company should devote to R&D, some analysts say Apple is approaching minimal levels. As a portion of sales, the amount Apple has spent on R&D has fallen steadily every year since fiscal 2001, when the company devoted 8%,” Wolverton writes. “Last year, Apple spent 3.8% of sales on development, and it spent just 3.2% in its most recent fiscal quarter. Apple hasn’t cut R&D spending. The company spent $534 million on development in fiscal 2005, which was 24% more than it spent in fiscal 2001. But the company has clearly been constraining the growth of development spending… Part of the reason that Apple can’t let its research spending decline much further is that the company has to bear costs that many of its PC industry competitors don’t. If it wants a new operating system for its Macintosh computers, for instance, Apple itself has to develop it; it can’t rely on Microsoft.”

Full article here.

MacDailyNews Take: It’s not how much you spend, but how well you spend. Clearly, Apple gets a lot more innovation for its R&D dollar than, say, Microsoft, for one bloated, wasteful example. Windows XP SP3, er, Vista is taking how long and costing how much to try to look like 2000’s Mac OS X beta on acid? Surely Apple will increase R&D expenditures if and when CEO Steve Jobs decides it’s necessary to accomplish certain goals.

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60 Comments

  1. I have to say, I have been dissappointed with the Apple designers recently.
    Other than the Mac Mini, the last major redesign was the iMac. The iBook and Powerbook/Macbook ranges havent had a redesign for 4 or 5 years now.
    What has Jonny Ive been doin?

  2. I’d like to ask the designers and engineers if they are wanting for anything. They may be able to do all they want already with what they have.

    From a more psychological perspective, though– when people have to do with less, they are forced to be creative. Doubt that’s what’s really going on here exactly. Apple R&D is hardly starved.

  3. I love how the articles here lately are spins on Microsoft “news”. Truth is, other than speakers and a $10.00 320×240 movie download, MS has been getting headlines with Windows Live services, Origami, Office 2007, Vista, and XBox360. The iPod hype is over. Now what, Apple?

  4. Every time it appears that Apple is slacking, they come out with something new and innovative. I think that will be the case in the coming months. With the transition to Intel, Apple has devoted all their energies into that, new, cooler looking products will be arriving there after.

  5. I must also admit Apple is severly lacking on their R&D spending.

    For instance there is a serious perfromance glitch on G5 processors and hard drives. G4’s actually test faster on I/O speeds than G5’s.

    Second Apple hasn’t used the latest hard drive SATA interface on their PowerMac G5 line, except in the Quad. So people can’t use the newest fastest drives in their PowerMac’s.

    Third, Apple is not innovating, it’s other people coming to Apple with innovative ideas. The iPod and the iTunes visuals are two glaring examples.

    Sure Johnathan Ives is getting a cool $1M a year to design better looking hardware, but Apple is copying, improving and marketing, not truly innovating.

    Look at the iPod HiFi, it’s not innovative, it’s a copy of thousands of existing products with a slap of a Apple logo and cheap plastic.

    It’s really sorry what Apple has become, in the grand scheme of Steve Jobs life lately, Mac hardware quality is really taking a back seat.

    It’s not getting better, it’s getting junkier.

    My 5G iPod video hardly works, I get better use out of my 3G.

    It’s like Apple is turning into a cheap, volume PC maker or something.

  6. Ok, but when they create the perfect design, both in form and function, it’s kind of hard to top it. I think what they present their customers is somewhat lightyears ahead of competition anyway.

    Look at Bang & Olufsen etc., they don’t need to change their looks every three months. Simply because their design “just works”…

    (and is farely timeless)

  7. As far as revs to their hardware’s appearance, I don’t expect much change there until the switch to Intel is over. They want their machines to look the same as the previous hardware as part of the mindset that the computer has not changed just because it has a different processor inside.

    Once the change is complete I’m sure Jonathan Ives will be set loose to bring us amazing looking new hardware. Personally, I’m expecting a rev to black shiny cases for the MacBooks.

  8. The author said that they haven’t cut funding for R&D, they just haven’t added the same percentage that they’ve seen in their profits. I remember reading awhile back, when they devoted 8% of their profits to R&D, that the actual dollar amount was much higher than other tech companies. It that amount has risen modestly, then the same is true today.

    If these guys are going to base these types of questions on percentages, they need to acknowledge that they are also subjective.

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