After a short period of calm, Apple’s R&D expenditures have skyrocketed again. Apple’s financial guidance for the second quarter of 2018 shows that the company will soon announce the largest increase in its historical quarter’s R&D expenses. Apple will spend 14 billion in fiscal year 2018. The dollar is used for research and development, which is almost twice as much as R&D investment 4 years ago. The sharp rise in Apple's R&D spending has triggered a lot of speculation about whether the company's product line and management's overall attitude towards R&D has changed.
Apple's R&D spending has seen unprecedented growth
Apple will spend 14 billion U.S. dollars for R&D in fiscal year 2018, which will exceed the sum of Apple's R&D expenditures from 1998 to 2011. Since 1998, the compound annual growth rate (CAGR) of Apple's R&D expenditure has reached 32%. As shown in Figure 1, the growth rate of Apple's R&D expenditure over the past 20 years is impressive.
Another way to prove that Apple's R&D expenditures have increased significantly is based on quarterly growth. Look at the quarterly growth in expenditure. As shown in Figure 2, from the second quarter of fiscal 2017, the growth of Apple's R&D expenses has always been on the rise. It is expected that in the second quarter of fiscal year 2018, Apple’s R&D spending will increase by US$725 million year-on-year, which will be nearly 25% higher than the previous year’s R&D expense growth record. This US$725 million data is guided by Apple’s operating expenses and directed to SG&A. , Estimated R&D costs. The recent increase in R&D spending shows that Apple is definitely doing something.
Three Projects Leading to Apple's R&D Expenditure
People easily take it for granted that the reason why Apple’s R&D spending increases year by year only reflects Apple’s expanding product line. However, the reasons behind Apple’s growth in R&D expenditures are more complicated. Three projects that led to the growth of Apple’s R&D expenditures. Here are:
1) Existing products. Taking into account the broader product portfolio, Apple is now doing more.
2) Internal Technology Development. Apple has made controlling core technology a major goal
3) New Products. The products Apple is developing cannot guarantee future commercial viability.
Once the commercial viability of a project has been established, it will be difficult for Apple to classify subsequent manufacturing or product evolution as an R&D category. This means that the money spent on developing a new version of an existing product is not necessarily included in R&D expenses. Instead, these costs may have to be marked as capital expenditures and amortized over the life of the asset.
Another project that has no impact on the research and development costs of Apple is the construction of an apple orchard. The cost of real estate construction for general enterprises, and even some design laboratories for R&D needs, cannot be classified as R&D expenses. Instead, classify real estate. For R&D, the future commercial viability must be uncertain. For example, in the mid-2010s, the numerous buildings that Apple acquired or began to rent, especially Project Titan, were likely to have boosted R&D spending at the time.
New product
Although Project Titan was an important driver of R&D expenditure growth a few years ago, there are now two new projects that have contributed to the recent surge in R&D spending:
1) Smart glasses. We know that in light of Apple's M&A records (Vrvana, SensoMotoric Instruments, patents, and subtle clues found in Apple management reviews), Apple is developing smart glasses. The team dedicated to this effort may be very large.
2) Content distribution efforts. Apple seems to have formulated a broader strategy on content and doubled its content as a publisher. Apple is providing music, video, applications, news and writing to more than 850 million users. Content, and invested a lot of money in this area.
Apple's efforts to launch video streaming services from scratch, may be classified as R&D. For example, Apple cannot guarantee that the money spent on script development will bring about commercially viable video streaming products. , Apple spent $1 billion on original video content.
Apple continues to work hard to strengthen its hardware capabilities to control the brains that power its products. As long as the byproducts of these efforts can bring products that differ significantly from existing products, Apple may classify these efforts as R&D. The ongoing costs associated with Project Titan may also be significant, especially found throughout Apple, relatively small products.
Policy changes
Although in terms of products, Apple is still a very focused company, but the money spent on research and development seems to show that when studying new ideas, Apple's management may loosen up the focus slightly. As seen in Appendix 3, Apple R&D spending as a percentage of revenue is currently at the highest level in 14 years. This means that despite significant sales growth over the years, Apple has invested more in research and development. For some companies, this may not mean anything. , But for Apple, it cannot be ignored.
The growth of Apple's R&D spending may be explained as follows
1) Greater ambition. Apple finds itself in a position to do more things. It is estimated that Apple spent 150 million US dollars to build the first iPhone around 2005. At the time, this was a very impressive for Apple. In the past 10 years, Apple found that it would cost so much money to develop a program for the upcoming video streaming service. To a certain extent, Apple’s management may think that given Apple’s size, it has Obligations do more. Just as Tim Cook said recently: 'We can do more than we have done in the past, because we are bigger.'
2) Competition. One factor that drives Apple to achieve more goals is competition. Controlling hardware and software alone is not enough. Apple now finds it necessary to control the technology that powers its equipment. It is not cheap to develop basic technologies in-house. Apple has already A series of R&D centers have opened around the world (China, Japan, India, Indonesia, New Zealand, Canada, France, Italy, Israel, Sweden, and the United Kingdom). Many of these R&D centers are tasked with developing hardware. Some R&D outposts are acquired by Apple. The results of the team.
3) More experiments. When it comes to new ideas and processes, Apple may do more experiments. Although there is no evidence that Apple will allow more ideas to enter the market, but Apple's management really hopes to be in this position. More ideas say 'no'.
The third point relates to additional experiments. The result is the most interesting. For companies located in Apple's position, focus on a few things at any time and use it as a core capability. Increasing the experiment seems to be Contrary to this value.
Apple's R & D theory
My opinion on the sharp rise in Apple's R&D expenditures is that management is becoming more ambitious. The future of Apple depends on new industries. Just as Apple switched from desktops or laptops to personal music players, smart phones are just like smart watches. The company will need to enter a new industry to maintain relevance. This is not a company that is holding onto the iPhone because of fear of change. Apple's management is investigating new ideas and processes to support future entry into new industries.
This explains Apple’s continuing interest in transportation and Project Titan’s continuing interest. Apple has little expertise in this area. Despite the lack of experience in developing scripted content, we still see Apple building a whole new entertainment sector from scratch. No matter from which case, Apple has to rely on external recruitment and large amounts of cash to establish its core competitiveness.
This is not to say that Apple has thrown its focus out of the window. Apple still has strong selectivity in M&A activities and deciding which products to enter the market. Apple’s R&D team did not provide funding for major R&D projects. There is no intention to launch a new product on a particular day, but rather to focus on those ideas that are at least likely to see the light. Making Face ID a reality is a typical example of Apple’s years of research and development.
The main reason facial recognition is in focus is that Apple’s Chief Design Officer Jony Ive and his industrial design team oversee Apple's product vision and the user experience of Apple products. With only about 20 members, Jonny And his team can only do so much at any time. To a certain extent, Apple’s organization and leadership structure is a safeguard against Apple’s over-expansion and over-expansion. Apple’s strategy seems to be to do the opposite, in some cases. Instead of trying to expand the design team to develop more products, the product is betting on bigger bets.
These bigger bets came in the form of having core technology for Apple devices. Apple hopes to reduce its dependence on others. We will soon see that each Apple product will be driven by the core technology developed in-house. In the past, this reality was only a 'daydream.' Apple believes that this strategy will enable them to take an advantage in the market.
For Alan Kay, the genius computer guru, the new twist is: People who really take software seriously should make their own hardware. We are moving in this direction. Companies that take software seriously should design their own silicon. Chips. With $285 billion in reserve cash, Apple has the freedom to pursue this ambitious goal. It is this motivation – to control more user experiences while entering new industries, and to promote significant growth in Apple’s R&D spending.