Analyst says Apple is not investing enough in innovation

Analyst says Apple is not investing enough in innovation
Bernstein analyst Toni Sacconaghi today said that even though Apple spent $12.7 billion last year on research and development (R&D), the company might not be investing enough in innovation. The amount of money that Apple spent on R&D last year was more than the amount it invested in new products from 1998 to 2011, a time period that included the introduction of the iPhone, iPad and the iPod. And yes, Apple's growth in R&D spending is faster than its revenue growth. But looking at it other ways, the company might actually be miserly in spending for the future.

Sacconaghi says that the tech titan is spending only 2% of its free cash flow on R&D compared to 25% for its peers. Free cash flow is the amount of cash generated by a company after accounting for capital expenditures (like buildings and equipment). Since Apple throws off a huge amount of cash every year, even 2% of free cash flow amounts to a ton of money. Still, as a percentage of this metric, Apple is not investing as much as the competition is.

The analyst notes that Apple spends 5.1% of its revenue on R&D compared to the 10% spent by other tech firms with the same gross margin that Apple generates (38%). Sacconaghi says the numbers show that Apple would need to double its R&D spending just to match the percentage of revenue spent by its peers. In 2017, Apple was the largest revenue producer among the ten largest U.S. tech firms by market cap, but was sixth out of the ten in R&D spending. 

While the actual dollar amount spent on R&D has quintupled over the last 6 and a half years, the analyst says, "The failure to produce other blockbuster offerings is perhaps most disappointing in the context of the company’s scale and Apple’s resources." Some of the increase in R&D spending will result in new products, but he does acknowledge that "Apple requires significant maintenance R&D to continue innovating its expanded product and—particularly—services lineup."


The next home run for Apple could be the rumored AR powered Apple Glasses. Loup Ventures analyst Gene Munster said last year that the product will be bigger than the iPhone. The glasses could launch in the 2020-2021 time frame.

You might recall that Apple was accused of losing its way and not focusing enough on innovation during 2012-2013. Since then, it has introduced the Apple Watch, AirPods, and the HomePod. Even though the Apple Watch has made Apple the largest watch maker in the world, none of those products have had the impact on global consumers that the iPod, iPhone and iPad had when each were launched.

source: Barron's

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131 Comments

1. cmdacos

Posts: 3872; Member since: Nov 01, 2016

No kidding...

12. Phullofphil

Posts: 1747; Member since: Feb 10, 2009

In house innovation is probably cheap. What cost the most is buying other people’s ideas. Besides more money don’t equal better results. If they saw somthing to spend it on than they will

23. torr310

Posts: 1625; Member since: Oct 27, 2011

I agree... more money isn't necessary to have better result. More importantly, hiring the right people and hitting the sweet spots make a company grow. HTC spent a lot hiring those executives a few years back but the result was horrible.

79. sgodsell

Posts: 6843; Member since: Mar 16, 2013

Apple is the king of recycling. Apple invests in recycling their old crap until it cannot be recycled anymore. Or until the public is sick of their recycled designs and specs.

112. Finalflash

Posts: 4062; Member since: Jul 23, 2013

I'm not against recycling older designs since it's more sustainable. But Apples version blows because they work towards destroying the advantages of reusable designs. The laptops are the same for years but repairs are more expensive each year. The phones are the same for nearly half a decade but once again, repairs get more expensive. In both cases, reusability is destroyed from crippling updates and systematic throttling. Upgrades are impossible now and they cost more and more for less and less. They're like the Exxon Mobil of the tech industry now.

132. rouyal

Posts: 1567; Member since: Jan 05, 2018

sgodsell is the king of recycling. sgodsell invests in recycling his old crap comments until it cannot be recycled anymore. Or until the public is sick of his recycled comments and dribble.

87. lyndon420

Posts: 6491; Member since: Jul 11, 2012

12 billion spent on R & D in one year might mean a good looking watch is finally in the works. Something with a circular watch face...something an adult would be proud to show off in public...?? (sometimes you need more than just an apple logo - just saying) (or...they've spent 12 billion on redoing apple maps...can see them pouring lots of money into that endeavor)

2. meanestgenius

Posts: 21453; Member since: May 28, 2014

I’ve been saying this since forever. Apple has far more than enough cash to spend on R&D to create mobile products that can blow every other OEM out of the water feature wise. But they don’t, always choosing to play it safe and trickle features down to their products. It’s past time that Apple took some chances. And please, no one give me that crap about “features that people don’t/won’t use”. Apples marketing machine has people thinking that the iPhone is the greatest thing since sliced bread, so they can surely convince Apple product users that these new features are needed.

3. apple-rulz

Posts: 1896; Member since: Dec 27, 2016

The iPhone pretty much IS the greatest thing since sliced bread, that’s why it has such a loyal following.

7. meanestgenius

Posts: 21453; Member since: May 28, 2014

LMAO! NO, it’s not. I would say “by your logic...” but it’s clear that with a name like yours, logic went out the window a long time ago and got replaced by that RDF.

15. Phullofphil

Posts: 1747; Member since: Feb 10, 2009

What’s your logic. You are saying absolutely nothing but insults but no proof

21. meanestgenius

Posts: 21453; Member since: May 28, 2014

My “logic” is what I posted. What’s yours, besides being triggered because I said something factual about your deity that you don’t agree with?

16. darkkjedii

Posts: 30833; Member since: Feb 05, 2011

Post of the day honors are yours my dude. +10 million.

22. meanestgenius

Posts: 21453; Member since: May 28, 2014

Lmao! Thank you, my dude.

30. apple-rulz

Posts: 1896; Member since: Dec 27, 2016

You are too stupid to realize Apples research and marketing is working very well, that is what has put them in such an enviable position.

42. meanestgenius

Posts: 21453; Member since: May 28, 2014

LMAO! That RDF out by your deity has a strong hold over you. If it didn’t, you’d realize that Apple could be doing so much more. Then again, with a name like yours, it’s no wonder that you believe otherwise.

54. mrochester

Posts: 947; Member since: Aug 17, 2014

Well the iPhone is the best selling phone in the world already, so it’s clear R&D for the iPhone is working exceptionally well.

59. meanestgenius

Posts: 21453; Member since: May 28, 2014

If sales are indicative of what’s the best, McDonald’s must have some exceptionally well burger R&D when compared to other fast food burger companies.

99. tedkord

Posts: 17131; Member since: Jun 17, 2009

That just proves marketing for the iPhone is working exceptionally well. The fact that they're being out Innovated regularly despite having the most money to invest in innovation disproves your point.

10. Phullofphil

Posts: 1747; Member since: Feb 10, 2009

In his opinion it is and in everybody else’s opinion that don’t agree well they have there own dumb reason to like there dumb manufacture. But the truth of it is without the iPhone it would have took another 5 or 10 years to get where we are today.

14. meanestgenius

Posts: 21453; Member since: May 28, 2014

$#33p detected.

25. handsomparis

Posts: 108; Member since: Jun 11, 2015

not necessarily , software wise yes I think they have did a good job with implementing new software features and making them work good they prolly the best at it but if it was up to them y'all would be using a iPhone 2g running iOS 11.4

100. tedkord

Posts: 17131; Member since: Jun 17, 2009

There is absolutely no truth to that.

111. Mr.Pussy

Posts: 348; Member since: Feb 16, 2017

I wonder if Apple and Google both got these ideas from someone just about same times. One was just got done earlier than other and released their phone out first (Apple) These OS is not easy to make. It take years to get all the resources. Tizen took forever never got out. Maybe because Google was against Samsung Tizen? I remembered hearing somewhere before Android went to Google they ask Samsung to buy them first but Samsung didn't. So they went with Google.

27. baldilocks

Posts: 1452; Member since: Dec 14, 2008

It's the same app launcher it has been since 2007.

89. lyndon420

Posts: 6491; Member since: Jul 11, 2012

Thought you returned your iPhone X because it sucked (you even had an honorable mention in one of PA's articles).

96. apple-rulz

Posts: 1896; Member since: Dec 27, 2016

I did return it.

5. darkkjedii

Posts: 30833; Member since: Feb 05, 2011

#facts #truth.

8. meanestgenius

Posts: 21453; Member since: May 28, 2014

For real, my dude.

13. darkkjedii

Posts: 30833; Member since: Feb 05, 2011

My only complaint is with the software bro. It just lacks too many common features, that combined with what it does do, would make it that much better. No pencil support, no multi window, no picture in picture, no tap to note, no free placed widgets, no app drawer, etc. Apple made the iPad even better, but skimped on the iPhone. It’s got hardware from hell, but it’s not being fully utilized. Hopefully they step it up with the 6.5. People nag on Samsung, but at least they take chances, and those so called gimmicks, actually turn out to be pretty cool most of the time. Give us the features, and we’ll decide to use them or not...damn.

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