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I disagree. Apple is a very capital efficient company and already spends a tremendous amount on R&D. Just like the concept of the mythical man-month, the margi

I disagree. Apple is a very capital efficient company and already spends a tremendous amount on R&D. Just like the concept of the mythical man-month, the marginal utility of investing additional money in r&d goes down as r&d spend goes up. Or to put it a simpler way, Apple is running out of effective avenues to invest their money. The correct move in that situation is to return the capital to shareholders, and stock buybacks are the most tax-efficient way to do so, with the added benefit that if the stock is undervalued (and Apple's certainly has been in the last few years relative to free cash flow), then the shareholders get an "extra" return on top of that. Don't get me wrong, Apple should absolutely invest in R&D...which they do. They're not pinching pennies, except in situations like the keyboard fiasco, not including adapters etc - but that's a separate issue. Absolutely the worst thing they could do is just go acquiring companies that don't actually fit with their business model. Remember that it takes human effort (meaning cognitive expenditure) to run a business, and getting side-tracked with non-critical businesses is absolutely antithetical to that. If/when Apple does find a company that has something unique for their situation, then they do acquire them.

gigatexal 7y ago
I will concede the point on the tax efficency of stock buy backs. But where I find we are in disagreement is in the purchasing of companies. An apple with Netflix and Disney would make Apple TV+ a whole lot better out of the gate than otherwise. Netflix has proven it can do original content and Disney's back catalog (now that they've bought Fox) is too big to laugh at. Owning Qualcomm would be immediately accretive to EPS given how important they are to the industry and would ensure that any modem needing components would be easily sourced. And you're right about the keyboard fiasco, what the heck went wrong there? In any case I am still very bullish overall on Apple and I can't wait for ARM based Macs.
- gordon_freeman 7y ago
  I don't necessarily want them to buy Netflix but I feel that they could have invested a lot of this money they are returning to shareholders via share buyback into funding to make more content. Netflix is going to spend $10-15 billion this year to make original shows and movies vs just $1 billion for Apple. So if Apple wants to go all-in on services business then they need to spend like one.
sytelus 7y ago
> marginal utility of investing additional money in r&d goes down as r&d spend goes up This would be true if there are no new products with huge potential to explore. I strongly believe any company's future depends on diversification. Your old products will eventually start becomming commodity with margin race to the bottom. Companies like Apple needs to come up with new product line every two years. To get one new product out, you need to invest in R&D for may be 10 internally because other 9 won't pan out. For each new product you eventually got out, most likely half might not show promise longer term to become big. So you are probably left with 1 big product coming out every 4 years and at the same time your previous big product that is ~12 years old starting to become low margin commodity. Apple is certainly doing great by putting out series of new products at predictable schedule but I think this could easily be twice of current rate given the untapped potential in so many areas.
- scarface74 7y ago
  They have a much more diversified profit generating portfolio than either Google or Facebook.
kkarakk 7y ago
They're investing in R&D - except people on the outside can't see what. Keyboard,Notch,Airpower - where is the money going exactly? on the credit card? ipad is slimmer i guess They're not pinching pennies - except they're obviously pinching pennies across the board, no long cable in macpro box anymore, no headphone dongle in iphone box anymore, no extra tips in apple pencil case anymore etc etc.No product recall on the garbage keyboard design is another penny pinching move imo, they've lost so much goodwill coz of that garbage design. I think the reality is quite different from what you're painting. They're cash bloated and dunno where to go because they've painted themselves into the "we're the best" corner
- erikpukinskis 7y ago
  > where is the money going exactly? 120hz Airpods, and the new embedded chips AR, certainly an upcoming headset A failed vehicle program Others?
  - kkarakk 7y ago
    120hz screens - made by samsung,they also sold to razer for their phone and htc i think Airpods - a proprietary bluetooth stack that only runs well with apple devices, wow much r&d. They run well but samsung mostly replicated the proprietary bluetooth stack for their own earpod/works with galaxy only pairing solution.They also die in a year with average use so imo it's just more electronic fad garbage. AR- vaporware currently to the point where they're talking about the credit card as a selling point. also AR in general is garbage on current gen devices. it's fun but it's not useful. vehicle- failed.
    - erikpukinskis 7y ago
      Failed and vapor ware are a positive indicator in R&D. Failure and prototypes are a normal part of research.
      - kkarakk 7y ago
        Is announcing things that are nowhere near completion as finished products coming soon and putting logos for them everywhere also a "normal part of research"?

gigatexal 7y ago

I will concede the point on the tax efficency of stock buy backs. But where I find we are in disagreement is in the purchasing of companies. An apple with Netflix and Disney would make Apple TV+ a whole lot better out of the gate than otherwise. Netflix has proven it can do original content and Disney's back catalog (now that they've bought Fox) is too big to laugh at. Owning Qualcomm would be immediately accretive to EPS given how important they are to the industry and would ensure that any modem needing components would be easily sourced. And you're right about the keyboard fiasco, what the heck went wrong there? In any case I am still very bullish overall on Apple and I can't wait for ARM based Macs.

gordon_freeman 7y ago
I don't necessarily want them to buy Netflix but I feel that they could have invested a lot of this money they are returning to shareholders via share buyback into funding to make more content. Netflix is going to spend $10-15 billion this year to make original shows and movies vs just $1 billion for Apple. So if Apple wants to go all-in on services business then they need to spend like one.

sytelus 7y ago

> marginal utility of investing additional money in r&d goes down as r&d spend goes up This would be true if there are no new products with huge potential to explore. I strongly believe any company's future depends on diversification. Your old products will eventually start becomming commodity with margin race to the bottom. Companies like Apple needs to come up with new product line every two years. To get one new product out, you need to invest in R&D for may be 10 internally because other 9 won't pan out. For each new product you eventually got out, most likely half might not show promise longer term to become big. So you are probably left with 1 big product coming out every 4 years and at the same time your previous big product that is ~12 years old starting to become low margin commodity. Apple is certainly doing great by putting out series of new products at predictable schedule but I think this could easily be twice of current rate given the untapped potential in so many areas.

scarface74 7y ago
They have a much more diversified profit generating portfolio than either Google or Facebook.

kkarakk 7y ago

They're investing in R&D - except people on the outside can't see what. Keyboard,Notch,Airpower - where is the money going exactly? on the credit card? ipad is slimmer i guess They're not pinching pennies - except they're obviously pinching pennies across the board, no long cable in macpro box anymore, no headphone dongle in iphone box anymore, no extra tips in apple pencil case anymore etc etc.No product recall on the garbage keyboard design is another penny pinching move imo, they've lost so much goodwill coz of that garbage design. I think the reality is quite different from what you're painting. They're cash bloated and dunno where to go because they've painted themselves into the "we're the best" corner

erikpukinskis 7y ago
> where is the money going exactly? 120hz Airpods, and the new embedded chips AR, certainly an upcoming headset A failed vehicle program Others?
- kkarakk 7y ago
  120hz screens - made by samsung,they also sold to razer for their phone and htc i think Airpods - a proprietary bluetooth stack that only runs well with apple devices, wow much r&d. They run well but samsung mostly replicated the proprietary bluetooth stack for their own earpod/works with galaxy only pairing solution.They also die in a year with average use so imo it's just more electronic fad garbage. AR- vaporware currently to the point where they're talking about the credit card as a selling point. also AR in general is garbage on current gen devices. it's fun but it's not useful. vehicle- failed.
  - erikpukinskis 7y ago
    Failed and vapor ware are a positive indicator in R&D. Failure and prototypes are a normal part of research.
    - kkarakk 7y ago
      Is announcing things that are nowhere near completion as finished products coming soon and putting logos for them everywhere also a "normal part of research"?