The global technology giant Apple becomes miser when it comes to investing in research and development. An analyst from Bernstein claims that tight-fisted Apple spends less on research & development in comparison with its massive revenue.
Last year Apple spent a monstrous $12.7 billion on R&D. The total amount of R&D is $51 billion after Tim Cook took reins of Apple in his hands. However, this is not enough, according to Toni Sacconaghi, an analyst at Bernstein.
Apple Should Spend More on R&D: Report
The current R&D investment of Apple appears to be large, but when the amount is compared to other technology businesses, it is about half as much.
The analyst said, “While Apple’s current R&D spending is large, our benchmarking analysis suggests that Apple appears to still be underspending on R&D today, perhaps by a factor of 2x.”
Toni compared Apple’s revenue, gross margins (GM), and research & development budget. He found that “Apple spent 5.1% of its revenue on R&D while reporting GMs of 38%. Our analysis suggests that normalized R&D spend for a tech company of a similar gross margin profile might actually be closer to 10%, suggesting that Apple could double its R&D and be relatively in line with peers.”
The analyst highlights that Apple launched its iPad nearly eight years ago, and changed the world with this smart device. Since then, there is no major product/service introduction from the company.
Sacconaghi says, “Perhaps most importantly, despite R&D spending more than quintupling over the last 6.5 years, Apple’s pace of new product introduction does not appear to have accelerated.”
Notably, Apple’s spending on R&D in the last one year is higher than it used to be.
Giving the benefit of the doubt, the analyst says that Apple might be using its R&D budget on the projects people are not aware of. For example, Apple could be pumping heavily into its rumored self-driving car.
The analyst noted that there are chances Apple could be spending $500 million to $1 billion of its $12.7 billion R&D spend on autonomous driving alone.
Interestingly, there hasn’t been any product or services come out of those heavy investments in Apple’s car.
Among other likely projects in Apple’s pipeline are AR/VR and streaming video. Apple has never spoken publicly about its spending on research and development. If you check the events, Apple has always surprised its users and competitors by releasing killer products and services without blowing trumpets.
Though Apple rules the communication technology, it lags behind other US tech companies in total R&D spending. In the list of 10 largest tech companies in the US, Apple stands at sixth position in R&D investment.
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