“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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“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.”
So R&D spending is UP!
“Part of the reason that Apple can’t let its research spending decline much further…”
No! It’s down!…or whatever. Get a brain transplant, dude.
People actually want Apple to INCREASE their R&D pace? Good grief, if Apple runs any faster, that SNL (Saturday Night Live) spoof of near-immediate obsolescence just might become reality!
Anyway, from the article:
“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.”
So Apple bears a huge cost that PC clone makers don’t, and Apple is supposed to RAISE that expense?! I like MDN’s take, it’s not what you spend it’s how well you spend. Better to run smart and demand results, than to throw money in the hole hoping a product emerges someday.
“If it wants a new operating system for its Macintosh computers, for instance, Apple itself has to develop it”
Um, Apple has a new, modern operating system with 10.4.5. We don’t need Mac OS 11 quite yet. And when we do, Apple will make it happen, without any Vista-like “place bets on the release date” fiascos.
Hey y’all MDN is dead on. I used to be a design engineer and it basically doesn’t have much to do with $$ spent in proportion to profits. The idea is to recoup all your R&D dollars once the new product goes on the market. Once it’s been there a while, you simply tweak the designs as needed, while lowering the cost to customers. This is how the game is played. You don’t keep redoing your designs from scratch every rev. That would be very bad business and the customers will hate paying the high cost of R&D with each rev of the item.
To me, Apple has already done the unbelievable with their designs. Take the iMac. They went from the old G3 (colorful) iMac to the COMPLETELY new design of the G4 flat panel iMac and not even a good year or two later, redid the ENTIRE design with the G5 (where’s the computer?) iMacs.
Same with the iPods. They even have the price falling while producing very different new designs. The “basic” iPod design, the iPod mini, the shuffle, the nano… c’mon! We’re spoiled!!
Apple is popping out new designs faster than anyone else out there. Sure their R&D dollars are less when compared to their profits because THEIR PROFITS ARE RISING VERY QUICKLY. Just because they make more profit doesn’t mean they should spend it where they don’t need to.
Consider that Dell, HP et al, all spend about the same as Apple on R&D (per some news story I read here some weeks back), and then tell me what do those companies have to show for their money spent? They have NOTHING like what Apple has to show. They can’t even “copy” what Apple has delivered and still turn a profit.
It’s a mistake to completely change the design on a product every six months. People are already confused about “which iPod should I get?” because each model is very different. That was one thing Steve Jobs did when he first returned to Apple… He cut down on the 10-15 some odd different computer models Apple had and scaled it down to much simpler consumer desktop, pro desktop, and laptop lines.
Please don’t let this author’s artical screw with your heads. He’s wrong. It’s like MDN said. It has more to do with what you get for your $$. Not how much you spend.
Also consider what we have that the PC’ers don’t. We have great hardware AND a great os that keeps getting better with each rev. We have Apple Retail stores. No other computer computer manufacturer has a world wide retail store chain. We have Xsans and Xserve, educational software packages, iLife and iWork, all the pro apps, .mac and the ITMS.
This is where the “profits” are being spent!! If you add up MS and any two of the best PC box makers, they don’t have anything like what Apple has been able to produce. All of this innovation comes out of Apple’s engineering department which is funded with these so called “inadequate” R&D dollars.
To think Apple is somehow sluffing in this area is just stupid. The proof is in the puddin.
Now, if you were to talk about advertising the mac/osX, I’d be the VERY first to say Apple is making a huge mistake in what’s (not) being spent.
Why should Apple spend to much on R&D? M$ will just steal their ideas.
RE: ” you buy one to show off and alienate yourself from humanity.”
Sounds like a Macintosh.
everything is rectangle, EVERYTHING, thats doesnt take millions to design haha
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dear god, don’t tell me they have to design the INSIDE too?!!
“dear god, don’t tell me they have to design the INSIDE too?!!”
In fact, Apple does spent a lot of time on the design of the internals. Ever peek inside a PowerMac G5? From the air flow channels to the “G5” stamped on the side of the processor boxes, it smacks of careful attention to every detail.
Heck, the circuit board of the “sunflower” iMac G4 was CIRCULAR – totally non-standard in the industry. Not only was it circular, but it was colored BLUE instead of the usual green.
Yep, Apple designs the inside, too, but all truly great designs are more than just beautiful on the outside.
Apple has definatly increased its bandwidth.
The download speed has been increased for sure. I dunno if this was today. But it downloaded a song in about 10 secs
are they really spending less on R&D?
it seems that if you spend lets say
100 million on R&D and make a profit of 1 billion
and the next year you make a profit of 2 billion
and still spend 100 million on R&D
is that really skimping?
do you need to spend more?
if profits go up and you still spend the same amount
that sounds like good business to me
ash , did you actually listen to those speakers ?
make a comment when you’re informed
dummy
the beolab 5’s are recognised as the finest speakers in the world and a lot cheaper than some of the so called esoterica flying about
The comments here that say “MDN takes are dead on,” are MDN staff themselves.
Apple is making more money now than they did in 2001. If the percentage of their profits is lower today it does not mean that they are spending less. I am sure that someone with a background in economics and business can explain this in more detail.
Another point: Apple is no longer as hands-on in their Mac’s motherboard designs as they were with PPC hardware. Intel does most of the work now and the lack of FireWire 800 in the MacBook is proof of that.
Last but not least: most of Apple’s software has matured, including the OS. Apple can now focus on fine-tuning performance and adding new features. I do not think that would cost them as much as writing this software from scratch.
Apparently they have been spending enough since the late 1990’s to develop best-of-kind products in several areas. They produced multiple releases of MacOS X since 2001 as well as many other great products – iTMS, iTunes, iLife, Airport and Airport Express, new iMacs, Mac mini, etc.
If they are spending 24% more now than in 2001 (less than that after inflation, but still growth), then there is no reason to believe that they cannot continue to produce great new products. The logic that R&D spending has to be a certain percentage of sales is faulty, as is the assumption that R&D has to growth commensurate with sales.
Funny thing is, if they did throw another few humdred million at R&D, people would scream at the reduction in profits… Besides, unless Apple can hire more people with the right stuff, the extra R&D would be wasted. Efficient, targeted R&D will beat random heavy spending any day.
It’s small, highly-talented teams of designers and engineers. I think that other companies would hire too many people and really get nowhere with the extra money spent of those wages. Apple’s computers were nearly perfectly designed, and the Intel processors, faster ram, better graphics, SATA, and standard front row are just making them better.
And another thing, SHUT UP PAUL!
How many articles can MDN post today that have been in circulation for weeks?
Christ…
Rome wasn’t built in a day, folks. Can ya jus’ wait till 10.5 and Macs with the new 64-bit dual core processors are released. Some of ya’ll actin’ like a buncha nervous nellies. Tighten up, fellas.
1) Industrial design is not the same as R&D.
2) If you exclude iPods – sales of which have been climbing exponentially and for which the R&D requirement is less onerous – R&D spend was 9.93% of CPU sales in FY2004, and 8.51% in FY2005.
3) If Apple continued to spend 8% of total sales on R&D, it would have a reserve of $232 million from the last quarter based on iPod sales alone. And it could probably reserve another $128 million in this quarter from the same source.
But the nice thing about not declaring a dividend or a share buyback is that – if the market ever gets tough again – Apple will still have the money to either a) innovate its way out of trouble or b) bear a couple of years of truly apocalyptic quarters. That’s as opposed to blowing all the money now just cause Troy “I’ve never run a real company” Wolverton says so.
3rdKidney, except for your last line, dead on. (See my comments on the advertisement article)
Luc
We have a new R&D department they are not taking into consideration.
Intel.
Bozos.
S.
(Magic word is, ironically, power.)
Often dismissed, often missed, we all love the Ma cDude®
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More security problems
OfficeMac, remote code execution
http://www.macnn.com/articles/06/03/15/excel.flaws.patched/
Quicktime (Mac or PC) code execution
http://www.pcpro.co.uk/news/84689/overflow-vuln-found-in-itunes-and-quicktime.html
Way to go Apple!
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What’s this ‘the Powerbook’s design is five years old’ ? The Aluminum Powerbook, as 12″ PB, was introduced in early 2003, the 15″ and 17″ PBs followed in summer hat year. That’s three years for me. And they are completely different from the previous TiBook, except for the silvery finish.
The decision to keep the form factors in the face of the processor change was a neat psychological trick, telling people, “Hey, it’s only the processor that changed, it’s still a Mac”. Besides, you cannot easily top the design of the Aluminum Books.
Paul… those vulnerabilities affect Apple… and WINDOWS… So your point is???
maczealot—-“Can ya jus’ wait till…”
Hasn´t that always been the rallying call for everyone interested in Apple products?
Everyone is waiting for the next great thing from Apple …and when it finally comes, it´s not that great and so everyone says “Can ya jus’ wait till…”.
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And R&D is not the same the design of a product. You guys is all confused.
Does the MacDailyNews Take always support whatever Apple does and critisize anyone who would dare question Apple/Jobs actions/logic?
Is this site run by Apple?