Apple's R&D Numbers - Something Good Brewing, Or Something Wrong?

| About: Apple Inc. (AAPL)

While we've certainly seen improvements in iTunes, iCloud, each version of the iPhone and iPad, many i-fans of the i-cult (which I am certainly a devoted i-member) have been a bit puzzled and disappointed at the lack of new product innovation coming out of Apple (NASDAQ:AAPL) the last few years and even more puzzling when the Dinosaur-like Microsoft (NASDAQ:MSFT) is seemingly out innovating Apple admits Steve Wozniak, one of Apple's founders. Meanwhile, Apple's research and development spending has been quietly heating up to a boil. Does Apple's accelerating R&D budget smell of a sweet surprise, perhaps something really bigger than anything any of us imagined, being prepared to shock and awe our palate like never before? Or did something go wrong at Apple where spending money on R&D isn't yielding the innovative product results even much smaller budgets were able to achieve?

There have been many rumors floating around regard the new iTV or iPanel, depending on which rumor about the name you believe, with little confirmation from Apple themselves. If history is any guide, when Apple tends to launch a unique product line, it tends to be disruptive game changer. The iPod, iPhone, and the iPad are three such i-technologies where mystery surrounded them before their official launches that changed our lives. Or perhaps this R&D runaway R&D spending is a sign of inefficiency management. With the recent firing of their maps manager, it's possible that what's really bubbling is hidden trouble for Apple which throwing money at the problem hasn't solved.

While CEO Tim Cook has continued to tease us with each conference call and interview about upcoming product launches, the vast majority of their details are still cloaked in the typical Apple mystery. Whether the disappointment in innovative launches is a result of investment in something or something bigger than ever, or a result of problems bigger than ever, remains to be seen. Here's some data showing the growth in R&D:

  Fiscal Year R&D in Millions YOY Growth in Millions
  1999 303  
  2000 380 77
Launch of iPod 2001 430 50
  2002 446 16
  2003 471 25
  2004 491 20
  2005 535 44
  2006 712 177
Launch of iPhone 2007 782 70
  2008 1109 327
  2009 1333 224
Launch of iPad 2010 1782 449
  2011 2429 647
  2012 3381 952
Click to enlarge


Consider this, based on the recent surge in R&D spending:

(1) Each year from 2010 to 2012 saw record increases in R&D spending. The record increase alone in 2012 was so big, it was $160 million more than the entire 2007 budget, the year of the iPhone launch.

(2) Apple has spent more on R&D in the last 2 years than the preceding 5 years combined, which included a period that saw the development and launch of the first iPad.

(3) In 2012 alone, Apple's R&D budget was bigger than the entire 5 years of R&D combined just prior to the iPhone launch and did so by a margin that was bigger than the entire 2006 budget.

(4) In the last 3 years, Apple has spent more on R&D than the preceding 11 years combined.

(5) In 2012 alone, Apple spent almost as much on R&D as it had in net income in 2007, the year of the iPhone launch and a record year in net income at the time.

(6) Apple's current R&D budget is bigger than the GDP of Greenland and the British Virgins Islands combined.

I think you get the picture. The R&D spending unprecedented and massive for Apple despite their product innovation being accused of being softer than it has in years. Something is brewing at Apple that is probably either really good or maybe really bad. I suspect there is no middle. You can smell it in the numbers.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.