One of the most important financial figures to keep an eye on when it comes to technology companies is spending on research and development (R&D). Spending on R&D, in absolute terms, as well as in terms of year-over-year changes, can be a reasonable indicator of how aggressively a company is spending to try to develop new technologies and products to go after its current, as well as potentially new, markets.
Apple (NASDAQ:AAPL) has been increasing its research and development investments at a relentless pace, and based on the company's most recent financial results, it doesn't seem to have any intention to slow that spending.
By the numbers
Last quarter, Apple spent $2.94 billion on research and development, representing a $377 million increase -- that's nearly 15% -- from the same period a year ago. Over the last nine months, Apple has spent $8.58 billion on R&D, up a stunning $1.1 billion -- or again, nearly 15% -- from the same nine-month period a year ago. At Apple's current R&D run rate, the company is on track to spend nearly $12 billion in research and development in its current fiscal year, making it one of the largest spenders in tech.
What is Apple spending all this money on?
Analysts have asked Apple management about the large increases in the company's R&D spending in the past -- it has been increasing for quite a while -- and back in April 2015, Apple CFO Luca Maestri attributed it to the following:
- A "broader" product portfolio.
- Spending "ahead of some of the products that will generate revenues in the future."
- More in-house technology development.
It's not hard to see relatively recent examples of this. Back in April of 2015, when Maestri made the comments that I'm referencing now, Apple hadn't released products like its new AirPod wireless earbuds, nor had it announced its HomePod smart speaker, which should start bringing in revenue by the end of this year.
In terms of a "broader" product portfolio, in addition to these new product categories, we've seen Apple expand the offerings even within established categories. The iPad Pro, for example, has proven to be an interesting extension of the company's core iPad product line.
Another perhaps even more interesting example, is what the company is expected to do with its iPhone lineup this year and in 2018. Apple is expected to launch three new iPhone models this year -- one with a 4.7-inch LCD, one with a 5.5-inch LCD, and one with a 5.8-inch OLED display -- and it's expected to release three iPhone models in 2018, as well. Even though these new products are "just" iPhones, Apple must do a lot more work -- on both hardware and software -- to launch a wider array of models.
Finally, there's Apple's continued efforts to roll its own technologies for its current product portfolio, as well as for its upcoming products.
Apple's in-house graphics processor technology, its rumored upcoming artificial intelligence chip, and its reported ambition to develop OLED display technology in-house, are just a few examples of Apple taking on additional technology-development efforts. Hiring the world's best engineers to build these technologies -- as well as countless others -- isn't cheap, but since Apple clearly wants to build leadership products, it needs to make the appropriate investments in people and resources.
As Apple's financials show, it's doing just that.