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One more reason to buy Apple (NASDAQ:AAPL) that no one talks about. They are smart with their R&D budget. Just like the old song "No one does it better".

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 (NASDAQ: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 (NASDAQ: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.

Intel's (NASDAQ:INTC) sizeable R&D has produced pretty flat operating income the last 5 years. Oracle's (NYSE:ORCL) R&D has risen 18% a year while operating income has gone up 15% a year.

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

Source: It's All About Apple's R&D