The company innovates like crazy. You get dizzy trying to keep up with all their new products. They enter a market, take it over, raise the bar whether it's in notebooks, music, cell phones.
What's great for shareholders is they do this with spectacular earnings. Their operating income has gone from -1 million dollars in 2003 to to 4409 million dollars in 2007. That works out to an increase of 881% a year the last 5 years.
The R&D has driven this. How gigantic is the R&D that's turned the world upside down?
The answer: tiny compared to its operating earnings. From 2003 to 2007, Apple spent 2991 million dollars while raking in 8818 million in operating income. Apple's R&D is 34% of operating income. And as Apple's operating income rises, the per centage of R&D/operating income plummets. 2004 saw R&D/operating income at 156%, now Q1 2008 it's dropped to 12%! On average, Apple's R&D has risen 13% a year, operating income 881% a year over the last 5 years.
Apple hasn't skimped on its R&D. It's been growing but its operating income has been growing far faster. It's amazingly productive. Think iPhone. Think iPod and iTunes. New Macs.
How does their R&D compare to other tech companies?
Below charts in millions of dollars except R&D/Op %.
click to enlarge image
Cisco (CSCO) pales in comparison: R&D up 9% a year, operating income up 15% a year. Cisco R&D over the last 5 years has been 75% of total operating income.
Amazon's (AMZN) story is sad. Its R&D has gone up 58% on average a year, its operating income 28% a year. The last 3 years Amazon has spent 1931 million on R&D while achieving only 1476 million in operating income.
Now R&D needs to be looked at how it benefits later earnings. It's very possible that Amazon, Intel, Cisco and Oracle will see huge windfalls from their R&D of the past 5 years in future earnings. But right now, Apple shows that it can produce astounding earnings from a comparatively small R&D budget. You can be assured that Apple's R&D will develop highly profitable products that will continue to shake up the world.
Disclosure: Author has a long position in AAPL