“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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