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(Disclosure: I hold AAPL) Great article but a couple of points: On Tuesday’s call, there was just one question about innovative offerings, and it concerned he
by xmodem 8y ago
(Disclosure: I hold AAPL)
Great article but a couple of points:
On Tuesday’s call, there was just one question about innovative offerings, and it concerned health applications, an important driver of Apple Watch sales but not a potential world-beating sensation. Apple appears to be happy to think small and focus on its shareholders, not on pie-in-the-sky ideas, like other tech companies, including industry leaders.
There's a key point I think the author is missing here. If Apple could spend $50 billion on R&D and get a worthwhile return, I think they absolutely would. Their below-par R&D is not from a lack of wanting. It's because they are much more focused. They don't burn cash on new ideas just because they can.
And if I thought Apple's health aspirations were limited to Apple Watch, well, I wouldn't be in the stock.
- whywhywhywhy 8y ago> They don't burn cash on new ideas just because they can How much was spent on Project Titan (The car)?
- xmodem 8y agoNo-one outside Apple knows, and we won't find out for at least another 5-10 years when executives start writing books about it, if ever. But you miss my point entirely. Perhaps a better way of putting it is in this comment from Tim Cook in 2009[1]: We believe we need to own and control the primary technologies behind the products that we make and participate only in markets where we can make a significant contribution. If there ever was a car-project (which there was enough smoke for that I think there probably was), it was because Apple's management genuinely believed at the time they could make a significant contribution to the automotive industry. The fact that, after trying for however long, they concluded the money had been pissed up the wall doesn't make the attempt any less valid. [1]: https://www.macobserver.com/tmo/article/apple_coo_tim_cook_lays_out_apple_manifesto_with_or_without_steve_jobs https://www.macobserver.com/tmo/article/apple_coo_tim_cook_l...
- jxdxbx 8y agoMost of Apple's R&D spending is not categorized as R&D. R&D spending is for basic tech research not product development.
- snowwrestler 8y agoAnd my understanding is that companies have considerable latitude in designating whether a particular activity is "R&D" or not. R&D expenditures don't seem like a metric that can be precisely compared across companies, or even reliably connected to future business success. It's not like companies that report the highest R&D spending are always the ones winning.
- mercutio2 8y agoI agree with your second paragraph, but quibble with the first. I don’t think there’s that much latitude. The IRS routinely questions companies large and small, in detail, about whether they were really developing new products, or just polishing/improving existing products. The former counts as R&D (and gets favorable tax treatment), the latter is not. The test is more complicated than this, but latitude is not a word I would associate with this term of art.
- snowwrestler 8y agoI get why the IRS would be interested in companies trying to hide operations inside the favorable tax treatment of R&D, but do you think the opposite is also true? Would the IRS (or SEC) care if a company underreported its R&D spending by choosing to classify new product development as a typical expense?
- mercutio2 8y agoPoint taken. I don’t know if the SEC would care, seems possible, but you’re right, it hadn’t occurred to me anyone would deliberately under report R&D, there probably is latitude in that direction.
- Clubber 8y agoYes, the guy's logic is whomever spends the most on R&D generates the most innovation (or something). How does he know what Apple is working on with R&D? What a silly statement.
- cromwellian 8y agoBecause other companies that spend a lot on research actually publish a lot of papers for other colleagues in the industry to read. The fact that Apple rarely publishes research is part of the problem, because it’s relationship with scientific community is unbalanced and more of a taker than a giver.
- cromwellian 8y agoAnother way to look at it is that for the iPhone to exist, a long string of failures had to exist going back to the PDA market, the Newton, the iPAQ, nokia smartphones, etc because the intermediate steps has to be funded to cost and size reduce the components needed until an inflection point was reached. Apple invests at inflection points, after massive R&D spending by others have created many of the pieces needed. You could call it brilliant or you could call it parasitic, I tend to find it a parasitic freerider in a way, not publishing as much research openly, not acquiring or funding as much of the startup community, in general, not funding research for the purpose of research and taking the risk of uneconomical results. This is similar to a University doing research for decades on a Particular drug pathway or health condition and the a pharmaceutical swooping in, taking the end result and patenting a medicine. Sure, they still spend a lot of money on developing the drug and going through medics trials, but public investment on the basics that came before it is what enabled it. I’d like to see more basic R&D funded by Apple, not just product development. More Bell Labs, IBM TJ Watson, Microsoft R&D.
- seem_2211 8y agoAt what point do you hit massive diminishing returns? $3.4b a quarter is $285m in R&D every single week. That's a lot of money, no matter how you slice it.