Apple spends less than its chief competitors on research and development, both in total dollars and as a percentage of its revenue.
Still, the company spends far more now than it did before Tim Cook ran the company.
Apple could be ‘underinvesting ‘ in R&D and M&A
During the second quarter of this year, Apple spent $4.8 billion on research and development, according to its own financial statement (pdf). That’s 8.0% of its total revenue for the quarter.
Compare that to Microsoft, who spent $5.2 billion in the April-through-June quarter on R&D, which was 13.6% of total revenue for the period. And Google’s parent company Alphabet spent $6.2 billion, a full 15.9% of revenue on R&D.
Another way companies get new technologies is buying startups with good ideas. But Apple has spent only 2% of its cash flow on mergers and acquisitions since 2012, according to Bernstein analyst Toni Sacconaghi.
“The combination of low R&D spending and low M&A suggests that Apple may still be ‘underinvesting’ in innovation versus its peers,” Sacconaghi wrote in a research note to investors on Tuesday.
Apple research and development spending is way up
Apple’s R&D spending is actually up considerably versus what it was when Steve Jobs ran the company. During the second quarter of 2011, the last in which Jobs was CEO, the company spent just $628 million on R&D, which was 2% of total revenue.
And spending in this category has risen steadily in the years since. In Q2 2015, for example, Apple invested $2 billion into R&D, or 4% of revenue. It’s more than double that now.
“Could the recent surge in Apple’s R&D spending presage new product innovation? Hard to say,” said Sacconaghi “We see potential in the sheer magnitude of Apple’s spending ($60 billion over the last 5 years) and the company’s focus on potential new categories.”
How Apple spends its R&D money
Although Cupertino announces each quarter how much it spends for research and development in total, it doesn’t reveal exactly what it’s doing with all those billions.
Of course, a sizable chunk goes to developing future versions of the iPhone, Mac, iPad, Apple Watch and other well-known products.
But the company also has other projects it tries to say as little about as possible. These are what Sacconaghi meant when he referred to “potential new categories.”
We do know about some of these. Apple can’t completely hide that it’s working on self-driving car technology, for example. And there have been plenty of rumors about augmented reality glasses. A respected analyst says these will be out in 2022, but a leaker says they’ll actually be out in 2021.
Both these projects are surely sucking up R&D dollars. And there could to be more that are completely secret.