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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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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