Apple is a cheapskate when it comes to R&D
Apple (AAPL) may charge a premium for its gadgets. But it's taking the cheap way out when it comes to innovation.
The maker of smartphones spent $8.6 billion on research and development last calendar year. That might sound impressive on its face - and it was mentioned by Apple CEO Tim Cook during Friday's meeting for shareholders. But Apple's R&D spending accounts for just 3.6% of the company's revenue, putting it dead last in terms of spending among the 10 most valuable companies in the Standard & Poor's 500, according to a USA TODAY analysis of data from S&P Global Market Intelligence.
Apple also also ranks 98th out of the 132 companies in the Standard & Poor's 500 that have so far reported their research and development spending for 2015 - as a percentage of revenue. That puts Apple at almost in the bottom quartile in terms of R&D spending among all the S&P 500 that have reported so far.
Expect R&D spending to be a bigger deal at Apple. The smartphone maker is under pressure by investors to regain its rapid growth back when it was aggressive pushing new technology categories including the smartphone and tablet. The company has warned its revenue and profit growth will stall in the coming quarters. Analysts point to the rapid maturity of smartphones as making it more difficult for Apple to grow. Apple's adjusted profit in the first quarter of the year is expected to fall 14% and revenue to drop more than 10%, according to estimates from S&P Global.
Apple seems to recognize more innovation is needed - and that will likely incur a larger expense. Apple's R&D as a percentage of revenue is tiny compared with other large companies, but it's rising fast. R&D spending at Apple in 2015 rose nearly 30% - making it the third largest rate of increase among the three most valuable S&P 500 following Facebook (FB) at 78% growth and Amazon.com (AMZN) at 35% growth.
Some might also point out Apple's massive revenue base makes it difficult to spend as much on R&D - as a percent of revenue. Apple reported nearly $235 billion in revenue last year - putting it third behind only Wal-Mart (WMT) at $482 billion and Exxon Mobil (XOM) at $237 billion. On an absolute basis, Apple's total R&D spending ranks it sixth - following Amazon, Alphabet (GOOGL), Intel (INTC), Microsoft (MSFT) and Johnson & Johnson (JNJ) - among the companies disclosing their 2015 spending.
But it's clear that the smartphone is getting long in the tooth. Most people who wanted one probably has two or three. Investors also want to see new products to get consumers pulling out their wallets again. Sometimes you have to spend money to make money.
