Apple’s Higher R&D Expense May Not Be Good News

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Apple announced lower gross margins and slower growth this week, leading to a selloff of their stock. But Chris O’Brien reports some good news:

[If] investors are looking for some reasons for optimism, they might do well to check Apple’s numbers related to its research and development spending. Tucked way down deep in its 10-Q filed on Thursday, the company noted that spending on R&D increased 33% in the quarter ending in December. That amounts to an increase of $252 million to a cool $1 billion.

….So, what’s cooking in Apple’s labs? Ha. You didn’t think they’d actually tell us that, did you? In the filing, the company said, “This increase was due primarily to an increase in headcount and related expenses to support expanded R&D activities.”

This might indeed be good news. But then again, it might not. Part of Apple’s success over the past decade has been its uncanny ability to invent a very small number of blockbuster products. Its R&D expense has been low—less than 2 percent of sales—largely because there was so little wasted motion: first the iPod, then the iPhone, then the iPad. That’s three products, along with a smattering of other stuff, generating $200 billion per year. That’s remarkable.

But as product lines age, they have to be maintained, and maintenance engineering is as costly as the original invention itself. Compatibility problems crop up, both between product lines and with prior versions of software. Old products have to be supported. Bureaucracies swell. Not every new product is a winner. All of that causes R&D expense to go up.

Maybe Apple still has the R&D magic. Maybe they’re spending more because their next product introduction will be even bigger and more amazing than anything they’ve done before. But then again, maybe it’s because they’re turning into an ordinary company. Maybe their improbable run of good luck is over. We’ll have to wait and see.

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Fact:

In-depth journalism that investigates the powerful takes real money and is so damn important right now.But it doesn’t take a Mother Jones investigation to know that billionaires and corporations will never fund the type of reporting (like they do politicians) we do that exists to help bring about change. Instead, our mission-driven journalism is made possible by people power, and has been for 46 years now since our founding as a non-profit.

In “TITLE TK” Monica Bauerlein writes about the perilous moment we’re in, and why it’s so important that we raise $325,000 by the time November’s midterms are decided so we can be ready to throw everything we have at the big issues facing the nation no matter what happens. Please help MoJo’s people-powered journalism with a donation today.

$400,000 to go!

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