Apple's Research And Development Advantage

| About: Apple Inc. (AAPL)

Apple turned the world upside down on a "shoe string" R&D budget, "minuscule" by comparison to Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT) and Cisco (NASDAQ:CSCO), yet so muscular in its effectiveness that it was frightening, arguably the best bang for the buck anywhere anytime. If you put all of Research In Motion (RIMM), Nokia (NYSE:NOK), Motorola (MOT), Hewlett Packard (NYSE:HP), Dell (NASDAQ:DELL) and MSFT R&D together, you still wouldn't produce one hundredth the great stuff coming out of Apple.

I identified Apple's R&D prowess earlier here, here and here. The thesis is still valid: Apple develops market-dominating products on a bargain-basement R&D budget.

In fact, it's getting better.

Apple's R&D as a percentage of sales has been dropping steadily, now equaling a tiny 2.24% sliver of revenue. Other technology companies allot a far greater share of their sales to R&D with the exception of HP (which has given up its innovative culture) and Dell (also not a powerhouse of creativity).

Despite spending less as a share of sales, Apple hasn't skimped on its R&D. R&D has been growing, but revenue has been growing far faster.

While budgeting R&D as a smaller percentage of revenue, Apple has actually been boosting its total dollars spent. The company more than tripled the budget since 2007.

In 2006, Apple spent $500 million and in 2007, it spent $800 million, and came up with the iPhone and a host of other products. In 2007, Microsoft spent over $7 billion and, in 2008, came up with what? I'll let you be the judge which company spent more wisely. This year Apple devoted $2.4 billion to R&D. Imagine what Apple's got up its sleeve.

Apple has a luxury few companies have: It can raise its R&D budget with little concern of hurting the bottom line. Investors can look forward to years of great product innovation.

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Disclosure: I am long AAPL, INTC.

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