“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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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?
everything is rectangle, EVERYTHING, thats doesnt take millions to design haha
Apple is not skimping on R&D, but on a coherent advertising campaign.
Well, I’d say Apple has hit the sweet spots for their machines, and there is no need to make any radical changes.
More people does not = better design development
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.
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?
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.
The other thing here is that Apple still spends considerably more than most of their competition on R&D.
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.
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)
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.
hehe good take mdn!
Hey, “Paul” . . . nice try!
I can tell that you’re really MacDude from a mile away.
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.
WizeGuy –
I agree. I too am a little disappointed with the rate of design change at Apple. And with the rate of ‘new’ product announcements in general. Fair play, the iMac was slightly revamped last year, and of course there’s the nano and iPod 5g – but these are really just variations on a theme. I was most disappointed at the lack of new look for the MacBook… (which, while still beautiful is, as you say, almost 5 years old now). However, I can appreciate the argument that Apple wants to signal that despite having Intel chips inside, “it’s still a Mac.”
My 5G iPod is just fantastic, I’m buying the iPod speakers at the end of the month because I’ve just listened to them in my local Currys and they blew away the next £250 iPod speaker set up.
To all the catch up companies, the birthday is seriously going to piss you off . . . Apple R&D will move the cool bar well above eye level.
Paul, buy an sandisk or a sony bean or something else, they work for sure.
If R&D has declined in real times then that should be a concern. However there’s another way of looking at these set of figures. During this period there has been a huge increase in sales and the company doesn’t have to increase spending on research and development as a proportion of sales but they do have to increase this figure.
My overall concern is that spending on this area has to increase in relation to the inflation rate. That means increasing R&D spending in relation to worldwide inflation.
As for MDN’s take, at best it’s smacks of voodoo economics and worst it reads like a snippet from some old style Soviet government spokesperson.
Andy,
Really everything is cuboid with rounded corners or edges.
“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.”
This has got to be the best line. Even Microsoft can’t rely on Microsoft!
FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD FUD
Security issue with Flash, remote takeover of Mac’s
http://www.macnn.com/articles/06/03/15/flash.security.update/
Darn will it never end?
We have been living in a pipe dream.
Wolverton shows the banal idiocy of using meaningless numbers to try to infer something.
The fact of the matter is, R&D as a precentage of revenue is becoming smaller because Apple’s revenues are growing 2-3x the industry average!
Revenues are growing much faster because Apple is selling more product for the same effort, and brainlessly pumping up R&D dollars does not result in proportionally more or better products!
DUH!!
Look at it this way. If Apple spent an extra $200 million a year on R&D, what would it do with it that it isn’t already doing?
A new Newton or Palm-type device is probably out of the question.
They are already working on all kinds of next-generation iPods. They are already working on iLife 2007, and new versions of all the Pro apps. They are working on a whole line of Core-powered Macs. iTMS continues to rock the industry.
I mean, Apple is already doing everything it needs to in terms of product development, and Wolverton’s call for increased R&D is what you get when bean counter analyst types with no ability to create hit products try their hand at creating any damn product on the theory that you will get at least 1 winner from a pile of something.
His call to spend more on R&D is like asking Pixar to pump out 2 films a year instead of 1 every 18 months, on the theory that twice as much is twice as nice. Hey, if you spent $200 million instead of $100 million, you can get two “Finding Nemos,” right?
But it’s clear the main reason Pixar films have been so successful and satisfying is that they refuse to treat filmmaking and storytelling like a factory assembly line, because no amount of money can produce a good story or a great movie before it’s time.
As Steve Jobs has said often in the past, Apple succeeds because he is even proud of what they choose not to do as much as doing great products like the iPod.
Look at it this way – Microsoft spent $5 billion developing Windows XP. Apple spent a fraction of that developing OS X. Does Wolverton want to pen an article on the topic of “bang for the buck?”
A company devotes an amount of money to R & D. Their income rises enormously and suddenly – say by 50%. Their R & D budget goes up by 10%. Suddenly their spending has gone up, but their % of revenue spent on R & D goes down. If the person that wrote this article believes he has hit on something he is right. He has bounded up against the limits of his own intelligence. It is enormously unwise to use statistics to support an argument you don’t understand, particularly when using statistics you don’t understand, especially when underscoring it with mathematics you don’t understand. The article implies that they have cut R & D spending – in truth they have become more profitable. If they have cut their dollar spend then the article would have a point, but they haven’t and it doesn’t. The MDN take is mistaken – it accepts that they have cut R & D. They haven’t. It’s just that revenues are spiralling.
Look at Bang & Olufsen etc., they don’t need to change their looks every three months. Simply because their design “just works”…
Actually walking into their store I’ve found their products lacking and overpriced beyond belief.
$16,000 for a pair of stereo speakers?
Their products are like Hummers, you buy one to show off and alienate yourself from humanity.