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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115 Comments

148. CarrieFTorres

Posts: 1; Member since: Jul 18, 2018

THE apple company is the best company everyone know that but i like the founder of ip oh my God the founder and entrepreneur and good man his name is steve jobs he is very brave man he is good competent apple not a famous company his man and his company hardworking work and his company always dreams his company product his world best really his company prof it best of luck apple company and bundle bundle of prayer his founder please read it thank you we change the world and we make the history.

144. Railgem

Posts: 3; Member since: Jun 24, 2018

You don't have to be an analyst to realise that.

109. Macready

Posts: 1832; Member since: Dec 08, 2014

The success of the Apple Watch, Airpods and Homepod was pretty much dictated by the huge userbase combined with its ecosystem or lock in, if you will. They're fine products but not stand out products that garner the masses that aren't already part of the ecosystem. Contrary to the iPod and iPhone that made it on their own. They were enough to create a foundation for an ecosystem, rather than having their success rely on it. That's been a problem for a while (with the main market stagnating) and it's the main reason why Apple is gradually shifting revenues (as a percentage) to services, because that's the easiest way to capitalize on the ecosystem.

84. TechSceptic

Posts: 1156; Member since: Feb 05, 2018

I've been saying this for years. Apple hasn't been at the forefront of innovation for years. They have been very stale ever since something like the iPhone 6 in both design and features. That's why Android smartphones has been able to catch up and overtake Apple's smartphones in that department. If you want exciting phones that brings something new and unique to the table, then Android is the place to be, not IOS. Apple is removing more features from iPhones than they're adding these last couple of years. This isn't just confined to smartphones tho, as there is no real innovation or noticeable improvement within Apple's laptops, tablets and even the earbuds you get with an iphone has remained the same for years. It's all just small incremental upgrades and nothing more. If Intel makes a new line of processors, then Apple might simply switch out the processor in their Macbook and then call them the next generation of macbooks and then expect an insane price tag.

103. midan

Posts: 3273; Member since: Oct 09, 2017

"If you want exciting phones that brings something new and unique to the table" Most people just want working phones which are easy to use. Less is more. Very few wants or are ready to buy phones which brings something new or unique If it doesn't really have any benefits or real use or the device is atleast in par with best ones in the market. Those small Android companies can bring all kind of stuffs which might sound cool etc. But in the end very few buy those because they aren't level of other phones in most important things or people just doesn't see point having those unique things. Making phone means making compromises and you have to have balanced device, it doesn't help you If you have some new tricks If the device itself isn't top level product.

104. midan

Posts: 3273; Member since: Oct 09, 2017

And this is why iPhone sales are so high year after year ;)

78. smoked_2na unregistered

Yeah, they may have spent $12.7 billion on R&D but they did it in SILICON valley where a 1200/ft house built in the 60's is going for $1M. Think about how much they would have gotten for their dollar in a labor base that is not in such a high priced region, say Boston or Durham or Seattle. Spending all that money on 20 somethings like that dork advert guy ( Thomas Middleditch ) for Verizon.

75. JimmieCrakCorn

Posts: 143; Member since: Nov 20, 2017

Not investing enough in innovation? Tim Crook and his fruity rainbow company can't innovate, PERIOD. He's no visionary genius... just a boring uninspired coattail-riding low-talent bean counter.

68. RoboticEngi

Posts: 1251; Member since: Dec 03, 2014

Another iiiiiPhoneArena defence article....

47. GreenMan

Posts: 2704; Member since: Nov 09, 2015

"Analyst says Apple is not investing enough in innovation." You don't need 'analysts' to figure THIS out, my dear. Even a drunk old man surrounded by bloody kangaroos can see it all the way from Aussie Land. Big deal! G'Day!

145. kucma

Posts: 88; Member since: Feb 01, 2017

Lol! You are funny! What would all these analysts do if we told them that? They’d be out of job and we’d have to pay taxes for their social support! :)

39. nodes

Posts: 1165; Member since: Mar 06, 2014

what is innovation meaning these days anyway? does something like thinner bezels count as innovation? because at this point, it's so little to innovate, even the sliding camera on Vivo/Oppo is a thing of past that resurrected.

40. iushnt

Posts: 3189; Member since: Feb 06, 2013

Something, that’s makes your life more easier by using it.

41. kiko007

Posts: 7525; Member since: Feb 17, 2016

Like what? Adding more cameras and RAM don’t sound all that life altering imo.

45. Y.S.L..

Posts: 232; Member since: Jul 03, 2018

I suppor subpoena you how dare you to nebwr ever by new phone that every year the new models will only lycra have specs upgrade. So stick to your one years phone and buy your nect phone in 6years time. Happy good

105. tedkord

Posts: 17529; Member since: Jun 17, 2009

No, but the way you can achieve those bezels can be innovative.

142. nodes

Posts: 1165; Member since: Mar 06, 2014

like they did with the iPhone X? the only phone without the chin.

9. SIGPRO

Posts: 2819; Member since: Oct 03, 2012

Have saying this for years! They are behind the market and don't innovate. If they implement something it is copied or stolen!

6. L0n3n1nja

Posts: 1620; Member since: Jul 12, 2016

Apple watch and Homepod are basically knock off devices from markets others invested in first. There is no reason for Apple to lack innovation, they have the money, but they'd rather stash it off shore than invest in the future.

4. darkkjedii

Posts: 31805; Member since: Feb 05, 2011

I 100% agree, and disagree. Apple is investing more in refinement software wise, but decent innovation hardware wise. The software feature wise could use an innovative boost, the hardware is just...damn!

28. iPhoneFanboy

Posts: 286; Member since: Apr 21, 2018

The way the iPhone X screen is folded under the bottom bezel is awesome - a reason why most Android phones have a big chin.. too expensive, manufacturing wise, to get that to happen. Software needs a huge leap in terms of pushing forward and leaving their roots (think folders, icon layout, etc) but I am happy to say I am loving the refinements in iOS12. Such a welcome update to not push bloated and unnecessary features but push stability and system refinement.

34. darkkjedii

Posts: 31805; Member since: Feb 05, 2011

I agree. iOS 12 is nice, and I’m looking forward to using it, but it could use more.

74. ColinW

Posts: 413; Member since: Jun 04, 2014

Sorry to wake you u, but the majority of the iPhone range has some of the biggest chins and foreheads in the market. The X can only do without them with the terrible compromise of a notch.

110. iPhoneFanboy

Posts: 286; Member since: Apr 21, 2018

But Android is "85%+ market share!!!!". Surely, the number of insanely huge chins and foreheads top the iPhone lineup. Good try. C- for effort.

146. Marcwand3l

Posts: 464; Member since: May 08, 2017

Actually they don't. Android phone have had better screen to body ratios for years.

127. tedkord

Posts: 17529; Member since: Jun 17, 2009

How is folding a foldable screen expensive?

147. Marcwand3l

Posts: 464; Member since: May 08, 2017

The more flexible OLED screen it the one which is expensive.

2. meanestgenius

Posts: 23092; 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: 2198; 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: 23092; 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.

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