For a company that makes as much money as Apple, you might be surprised to learn that it spends far less on Research and Development (R&D) than many of its competitors, including bigwigs like Google, Microsoft and Samsung.
That's not to say Apple isn't keen on R&D. On the contrary, Apple openly acknowledges in nearly every SEC filing that continued investment in R&D is critical to the company's ability to compete and the future "development and sale of innovative products and technologies."
With Apple's 2013 books officially closed, I took a comprehensive look at Apple's Form-K filings with the SEC in order to get a crisper picture as to how Apple's R&D expenditures have changed over the last 19 years. As a point of reference, Apple in 2013 spent US$4.5 billion on R&D initiatives, a figure that Apple says was "driven by an increase in headcount."
Below is a chart mapping out Apple's R&D expenditures from 1995 through 2013.
One of the more interesting data points from this chart is that the company's R&D costs took a noticeable plunge following Steve Jobs' return to Apple. This is without question the result of Jobs' effort to streamline Apple's entire product line and refocus the company's energies and efforts on just a few core products. Of course, in the process, some beloved products like the Newton were shown the door.
Hardly a secret, Apple's 1999 Form 10-K filing with the SEC references this point quite explicitly:
The declines in total expenditures for research and development in 1999 and 1998 as compared to 1997 were principally due to restructuring actions taken by the Company intended to focus the Company's research and development efforts on those projects perceived as critical to the Company's future success.
Over the next few years, R&D at Apple remained relatively steady, not even crossing the $1 billion-per-year threshold until 2008.
Now given how relatively little Apple spends on R&D compared to some of its tech rivals -- Microsoft, for instance, spent more than $7 billion on R&D in 2007 and $10 billion in 2013 -- the following Jobs quote from a 1998 Fortune interview comes to mind.
Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it.
Jobs' quote aside, as Apple's revenue began to reach unprecedented heights on the strength of the iPhone and later the iPad, the company's annual R&D costs went through an equally impressive period of growth.
Here we see that Apple's R&D expenditures from 2011-2013 alone account for nearly 50 percent (48.7 percent, to be exact) of Apple's total R&D costs since 1995. Put differently, Apple over the last four years spent more on R&D than it did during the preceding 15 years combined.
Another interesting data point to look at is how much Apple spends on R&D as a percentage of its net sales. Here we see that this percentage has actually gone down in recent years, though this is more a reflection of Apple's astronomical revenue growth during that same time period.
As a final point of interest, a recent European Union R&D spending report found that 45 companies across the globe spent more on R&D in 2013 than Apple did. Note that Samsung in this regard checks in at number two on the list, followed closely by Microsoft and Intel.