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Apple’s R&D Spending Rises, But It’s Still Small Change

Apple plans to keep inventing new product categories without much of a boost from its cash reserves.
April 23, 2013

As its gross margins shrink and the company casts about for its next hit product categories, Apple is continuing to spend more on research and development than it has in the past (see “Can Apple Still Innovate on a Shoestring?”).

Apple has historically been a stingy R&D spender, but the number is slowly growing. In its earnings release today, Apple said it spent $1.1 billion in the second quarter on R&D compared to $841 million last year. The $2.1 billion it has spent in the first two quarters of this year puts it on track to spend more in 2013 than it did in 2012 ($3.4 billion) and 2011 ($2.4 billion).

Still, Apple’s philosophy of spending a relatively small percentage of its sales on R&D compared to the likes of Google and Microsoft has not changed, especially considering the unprecedented amount of cash Apple has on hand. (In this quarter, for example, it devoted only 2.5 percent of its revenue to R&D versus Google’s 13 percent.) And to placate shareholders, CEO Tim Cook announced a plan to spend down a large portion of Apple’s current $145 billion cash reserve by paying dividends to shareholders and repurchasing shares to the tune of $100 billion by the end of 2015. It also had its strongest March quarter of revenue and iPhone and iPad sales ever, selling 37 million iPhones and 19.5 million iPads.

All of this will leave Apple, still, with a lot of cash. And as my colleague Brian Bergstein pointed out (see “The 12-Digit Number the Tech Industry Needs to Watch”), that fat wallet still leaves Apple in a good position to make big acquisitions that would reshape the electronics and Internet media industry. If Apple wanted it, even Netflix, which has a market capitalization around $12 billion, could be within its sights.

On a call with analysts today, Cook talked about being excited for new product categories that were coming, which could refer to a “smart watch” product, a rumored TV service, or a perhaps a move into payments. “We’ve got a lot more surprises in store,” Cook said.

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