Apple R&D as percent of revenue hits a low

Company's research and development spending as a percentage of revenue has been on the decline for years.

Guess what Apple's research and development spending is as a percentage of revenue?

Chances are your answers are so far off that Apple's R&D spending could be a drinking game.

If you ask a few friends you're likely to get guesses anywhere from 4 percent to maybe 10 percent or so. The real answer: R&D represents 2.2 percent of sales.

The point is worth pondering as Apple preps its fiscal fourth-quarter earnings tomorrow. For the nine months ended June 25, Apple's R&D spending was $1.78 billion, or 2.2 percent of sales.

And we scream that Hewlett-Packard isn't innovative for spending 3 percent of sales on R&D spending.

Apple's figures, which were found doing some research, highlights how Apple's R&D spending has been sliding as a percentage of revenue for years. Granted, Apple's revenue has been growing so quickly that it would be nearly impossible to keep up its R&D spending as a percentage of revenue without just throwing money away, but the spending levels are notable.

Note that Apple's R&D spending is increasing, but not at a pace to keep up with its skyrocketing revenue. In fiscal 2000, Apple's revenue reached $7.98 billion. This fiscal year, it's expected to hit $109 billion.

For comparison's sake, here are R&D figures from related tech giants:

• HTC spends 3.83 percent of revenue on R&D as of June 30, down from 5.23 percent for the same period a year ago.
• Microsoft spent 13 percent of revenue for fiscal 2011, down from 14 percent in fiscal 2010.
• Dell spent 1 percent of revenue on R&D for fiscal 2011.
• Google spent 14 percent of revenue on R&D for the nine months ended September 30.
• IBM has spent 6 percent of revenue on R&D for years.
• For the nine months ended July 31, HP spent 2.5 percent of revenue on R&D.

Here's a look at Apple's trend:

Larry Dignan/ZDNet

• Today: R&D is 2.2 percent of revenue.
• Fiscal 2010 R&D spend: 2.7 percent of revenue.
• Fiscal 2009 R&D spend: 3.1 percent of revenue.
• Fiscal 2008 R&D spend: 3.4 percent of revenue.
• Fiscal 2007 R&D spend: 3.3 percent of revenue.
• Fiscal 2006 R&D spend: 3.7 percent of revenue.
• Fiscal 2005 R&D spend: 4 percent of revenue (restated).
• Fiscal 2004 R&D spend: 4 percent of revenue (restated).
• Fiscal 2003, 2002, 2001 R&D spend: 8 percent of revenue.
• Fiscal 2000 R&D spend: 5 percent of revenue.

The larger question here is what is Apple doing to wring so much return out of its R&D spending. A few thoughts:

• Apple may have a relatively small product team.
• Apple doesn't engage in fundamental research like an IBM would.
• The company is focused on software and industrial design where the innovation may not require a lot of R&D spending.

In any case, Apple's R&D spend as a percentage of revenue is worth watching going forward. The company obviously stepped up its R&D game in the early part of the last decade and is harvesting the returns in 2011.

This story originally posted on ZDNet as "Apple's R&D spending hits bottom as percentage of revenue."

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