Please ensure Javascript is enabled for purposes of website accessibility

Apple, Inc. Isn't Scared to Invest in the Future

By Evan Niu, CFA - Jan 27, 2016 at 11:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The iPhone maker is still planning on ramping up R&D spending and capital expenditures.

Global markets are in a bit of a rut right now, which is affecting even Apple (AAPL 2.14%). On last night's earnings call, Tim Cook acknowledged several important headwinds that Apple is facing right now. But despite the difficulties, Apple isn't swayed from investing in future growth. In fact, Cook says that investing during downturns has always proven to yield strong results farther down the line. Apple isn't scared.

R&D expense is moving on up
Apple has always been known for extremely efficient R&D spending, often comprising just a minuscule percentage of sales. While bears may equate lower spending to lower innovation, I consider it higher efficiency. Higher spending levels often translate into wasteful spending. In dollar terms, Apple spent just $8.5 billion research and development during 2015. But if you look at the company's R&D spending as a percentage of revenue, you'll notice that it's on the rise compared to historical levels.

Data source: SEC filings. Calendar quarters shown.

Of course, the real question is what is Apple spending all these development dollars on? We do know that it has hired over 1,000 auto engineers for the rumored Apple Car, although the head of Project Titan has now left the company and Apple reportedly implemented a hiring freeze within the division. Design chief Jony Ive is supposedly unhappy with the team's progress.

Apple is certainly continuing to invest in Apple Watch's pipeline, since the first-generation model has a long way to go to become a truly compelling product category.

Meanwhile, Cook acknowledged on the call that the nascent field of virtual reality is "really cool and has some interesting applications." The executive does not believe that VR will prove to simply be a niche, suggesting that Apple could be interested since the company typically only pursues mainstream market opportunities. Oh, Apple also just hired a prominent VR researcher too, by the way.

Apple is clearly searching for the next growth opportunity, and you can see it in the R&D figures. Cook said Apple continues to invest in R&D "without pause," saying that there are "great things in the pipeline."

Hey, big capital spender
Capital expenditures have skyrocketed in recent years as well, and the Mac maker's capital spending isn't slowing down anytime soon. In the most recent 10-K annual report, Apple predicted that it would shell out a jaw-dropping $15 billion in capital expenditures during fiscal 2016, up from $11.2 billion fiscal 2015.

Spaceship campuses aren't cheap. Image source: Apple.

When asked about this capex forecast on the call, CFO Luca Maestri reiterated that the plans are unchanged, even in light of the difficult macroeconomic environment. First and foremost, product tooling and manufacturing equipment always comes first in terms of priority. The company is also allocating a lot to expanding its data center infrastructure. With 1 billion Apple devices now in use, the company needs this infrastructure to deliver its various services. This year will also include a lot of spending for Apple's new spaceship campus, which is proceeding on schedule.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$172.10 (2.14%) $3.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.