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Apple may not spend as much as it could on research and development

From time to time, we talk here about Apple's investments in Research and Development, and for a very simple reason: the Cupertino giant has dedicated an increasing portion of its formidable piggy bank to this crucial area for the future of any self-respecting technology company.

However, let us not be deceived: even if the sum spent by Ma in R&D fills our eyes, that amount could be even greater, at least as stated by Toni Sacconaghi, from the Bernstein investment firm.

The analyst begins by recognizing that Apple's investments in R&D are growing at a breakneck pace: in the last fiscal year alone, $ 12.7 billion, more than all the money spent in the area between 1998 and 2011, the period that saw the introduction of the three most recent Ma products as revolutionaries, the iPod, O iPhone it's the iPad. Since Tim Cook took over the Cupertino areas, the figures invested in R&D have reached $ 51 billion.

Comparing Apple's spending with that of its main competitors relatively, however, Ma is still lagging behind: according to Sacconaghi, in proportionate terms the company invests approximately half of what its main competitors spend in the R&D sector.

Apple spent 5.1% of its revenue on R&D while reporting a gross margin of 38%. Our analysis suggests that a ?normalized? spending on R&D for a technology company with a similar gross margin may actually be closer to 10%, suggesting that Apple could double its investments in the sector to be on an equal footing with its competitors. To put it another way, among the top ten U.S. companies by market value, Apple had by far the highest revenue of 2017 ($ 239 billion), but was only sixth in total R&D spending.

The analyst adds that numbers alone do not solve the whole issue: the problem lays even more in the fact that, although R&D spending is growing substantially, this provision is not translating into new smash hits or disruptive products like the iPhone or the iPod.

Despite this, Sacconaghi recognizes that the most important effects of Apple's R&D initiative may yet to appear, both in its product line and (mainly) in its services. The analyst, however, is reluctant to recommend Apple as a central long-term investment, especially since the iPhone still represents more than 60% of the company's profits and the iPhone, like any piece of technology, cannot last forever.

via Cult of Mac