Apple outlines changes in strategy, rise in R&D spending, more

[AppleInsider]

Apple in its annual filing with the Securities and Exchange Commission on Wednesday outlined a number of new metrics on the company's business strategy, its retail operations, R&D investment, Snow Leopard-releated expenditures, worldwide operations, and more.

Business Strategy

In particular, the Cupertino-based company used the latest 10-K filing to describe its overall business strategy differently this year. Last year, the company focused on its "digital lifestyle" products for consumers and the company's stronghold markets in education and creative professionals, relegating all other business into a single sentence.

This year's report outlines "consumer and small and mid-sized business," education, and then emphasizes "enterprise, government, and creative" as being the core target of its "high end hardware solutions," including the Mac Pro, MacBook Pro, and MacBook Air.* *

Retail

Apple reported a new total of 247 retail stores, including 205 in the US and 42 internationally, compared to 197 stores, 174 in the US and 23 in just Canada, Japan, UK, and Italy. It notes a primary goal the stores to expand its installed base by selling its products to people who "do not already own the Company's products."

R&D Investment

In research and development, Apple's filings outline a significant progression of new spending from $535 million in 2005 to $712 million in 2006, $782 million in 2007, and now $1.1 billion in fiscal 2008, more than twice what the company invested just three years ago.

Apple noted that the 42 percent*increase in 2008 was "due primarily to an increase in R&D headcount in the current year to support expanded R&D activities and higher stock-based compensation expenses."*

Excluded from the R&D figures are $11 million in software development costs related to next year's Mac OS X 10.6 Snow Leopard. In 2007, the company similarly excluded $75 million in capitalized*software development costs related to the current*Mac OS X 10.5 Leopard and iPhone.

Also up are expensed related to reimbursing Steve Jobs for "the operation of his private plane when used for Apple business." That number is at $871,000 for 2008, up from $776,000 last year and $202,000 in 2006. Whether Jobs is flying significantly more or if that new expense is associated primarily with the sharp increase in fuel costs is not apparent from the report.*

Intellectual Property

Related to patents, this year's 10K notes that the "Company has accumulated a portfolio of several thousand issued patents in the U.S. and worldwide. In addition, the Company currently holds copyrights relating to certain aspects of its products and services. No single patent or copyright is solely responsible for protecting the Company’s products."

It also makes the new observation that, "The Company believes the duration of the applicable patents that it has been granted is adequate relative to the expected lives of its products. Due to the fast pace of innovation and product development, the Company’s products are often obsolete before the patents related to them expire, and sometimes are obsolete before the patents related to them are even granted."

Worldwide Operations & Headcount

The share of Apple's sales made in the US fell from 60 percent of its net sales in 2007 to 57% in 2008, highlighting the company's increasing expansion overseas. The near doubling of international retail stores also plays a part in this changing ratio, which is occurring even as Apple's sales increase to new highs across its product line.

Apple also reported an increase in full-time equivalent employees from 21,600 to 32,000, and a jump in temporary employees and contractors from 2,100 last year to 3,100 at the end of its fiscal 2008 in September.

Compensating Fadell as a Consultant

The filings also noted that as a result of the departure of iPod chief Tony*Fadell from his day-to-day duties at Apple, the company has entered into a Transition Agreement and a Settlement Agreement under which Fadell will receive a salary of $300,000 annually for his new role as Special Advisor to Jobs.

He'll also be entitled to bonus and other health and welfare benefits generally available to other senior managers for the duration of the Transition Agreement, which remains in effect until March*24, 2010. The Transition Agreement also provides for the cancellation of outstanding and unvested 155,000 restricted stock units held by the executive.

Upon approval by the Compensation Committee of the Company’s Board of Directors, Fadell will be granted 77,500 restricted stock units that will vest in full on March 24, 2010, subject to his continued employment with the company through the vesting date and further subject to accelerated vesting if the Company terminates his employment without cause.

"The restricted stock units are payable upon vesting in shares of the Company’s common stock on a one-for-one basis," Apple said. "The Settlement Agreement includes Mr.*Fadell’s release of claims against the Company and agreement not to solicit the Company’s employees for one year following the termination of his employment."

[ View this article at AppleInsider.com ]

[SpamSandwich]

No matter what else changes, they'll always be "Cupertino-based" to me...

[samurai1999]

R & R Investment
- I could do with some of that!

[sflocal]

Compare what Apple is spending for R&D to the $300m that Microsoft spent just to advertise Vista. I think that will explain which company is getting more bang from their buck.

[PG4G]

Indeed - I forgot about the microsoft investment.

If a full new version of Mac OS X can be stripped and gleaned and produced at $75 million a year, I wonder how much Microsoft is investing in actually fixing Vista. This gives more credence to the "Advertising, advertising, advertising, *fix vista*" ad that Apple produced.

Go Apple.

Microsoft, you're an embarrassment for an investment as a consumer.

[Ahruman]

Related to patents, this year's 10K notes that the "Company has accumulated a portfolio of several thousand issued patents in the U.S. and worldwide."

And how many of those were invalidated in the sudden burst of sanity known as in re Bilski last week?

[allblue]

I wonder what percentage of R&D is being spent on 10.7?

[Slewis]

Null.

[EyeNsteinNo]

The domestic market may look like this:

December 01, 2006 Jonny Evans, Computerworld
"In measuring the impact on the switch rate stemming from the Mac's ability to run Windows, we assumed that the only Windows users who switched were those in the U.S. and European home markets. These markets represent about 20% of the worldwide PC market. Our forecast has Apple's share of these two markets increasing dramatically -- from 9% in 2006 to over 40% in 2016. A significant portion of the increase results from our plausible assumption that once they switch, a high percentage of Windows users will stay with the Mac platform when they subsequently upgrade," he said.

For a worldwide market prediction(same Dec 1-2006 Article), go here:

http://www.computerworld.com/action/...&intsrc=kc_top

[Johnny Mozzarella]

Originally Posted by AppleInsider

Compensating Fadell as a Consultant

The filings also noted that as a result of the departure of iPod chief Tony*Fadell from his day-to-day duties at Apple, the company has entered into a Transition Agreement and a Settlement Agreement under which Fadell will receive a salary of $300,000 annually for his new role as Special Advisor to Jobs.

He'll also be entitled to bonus and other health and welfare benefits generally available to other senior managers for the duration of the Transition Agreement, which remains in effect until March*24, 2010. The Transition Agreement also provides for the cancellation of outstanding and unvested 155,000 restricted stock units held by the executive.

Upon approval by the Compensation Committee of the Company’s Board of Directors, Fadell will be granted 77,500 restricted stock units that will vest in full on March 24, 2010, subject to his continued employment with the company through the vesting date and further subject to accelerated vesting if the Company terminates his employment without cause.

"The restricted stock units are payable upon vesting in shares of the Company’s common stock on a one-for-one basis," Apple said. "The Settlement Agreement includes Mr.*Fadell’s release of claims against the Company and agreement not to solicit the Company’s employees for one year following the termination of his employment."

Sounds like Tony might not be leaving on the best of terms. Perhaps he felt he wasn't being properly compensated for his role in the iPod. $300,000 a year to be an advisor to Jobs sounds like a sweet deal. He should go work for IBM.

[quinney]

Originally Posted by Johnny Mozzarella

Sounds like Tony might not be leaving on the best of terms. Perhaps he felt he wasn't being properly compensated for his role in the iPod. $300,000 a year to be an advisor to Jobs sounds like a sweet deal. He should go work for IBM.

OK, but we want another first round draft choice.

[Hoss]

Could you imagine if Steve Jobs donated an iphone to every child in Kenya in honor of President Obama's victory?

Government contract ba-by. A Mac on every desk in every US school.

[pk22901]

@Johnny Mozarella

FreeScale announced on 10/3 that it was separating it's foundry and selling it to an unannounced buyer. Could Apple be the buyer? And does the IBMer (name???) have the experience in running a foundry that Tony is lacking?

(fresh rumor alert) Is Apple planning to build its mobile chips using PA Semi minds and the FreeScale foundry with Mr IBMer running the whole show?

[Chris_CA]

It notes a primary goal the stores to expand its installed base by selling its products to people who "do not already own the Company's products."

And it plans to do this by putting up "I'm a PC" kiosks outside all of their Apple retail stores."
"That'll get them in by the droves", stated Steve Jobs.

[EyeNsteinNo]

"I'm a PC too" (Public Convenience)

http://www.jcdecaux.co.uk/assets/sta...dapc_hydra.jpg

[e1618978]

Originally Posted by Johnny Mozzarella

Sounds like Tony might not be leaving on the best of terms. Perhaps he felt he wasn't being properly compensated for his role in the iPod. $300,000 a year to be an advisor to Jobs sounds like a sweet deal. He should go work for IBM.

No, it is probably just a standard contract. And the new options probably have a lower strike price ($100?), so it does not matter that there are less. If Apple goes back to $170 in the next year or two his stock is worth $5.4 million, so the $300k is not the big deal.

[Rayz]

Originally Posted by PG4G

Indeed - I forgot about the microsoft investment.

If a full new version of Mac OS X can be stripped and gleaned and produced at $75 million a year, I wonder how much Microsoft is investing in actually fixing Vista. This gives more credence to the "Advertising, advertising, advertising, *fix vista*" ad that Apple produced.

Go Apple.

Microsoft, you're an embarrassment for an investment as a consumer.

How so?

The problem with believing everything you are told in an advert, is that it only really tells part of the story.

Did MS spend $300million on Vista advertising? Hell no, they probably spent way more than that.

And did spending this money mean that Microsoft had no cash available to fix Vista (bearing in mind that updates have been coming pretty regularly since release)? If you believe that, then I have a genuine chunk of Mars rock to sell you ...

Microsoft's budget for R & D stands at $8.2 billion for 2008. I think they can find enough in there to 'fix Vista'.

[Rayz]

Originally Posted by Johnny Mozzarella

Sounds like Tony might not be leaving on the best of terms. Perhaps he felt he wasn't being properly compensated for his role in the iPod. $300,000 a year to be an advisor to Jobs sounds like a sweet deal. He should go work for IBM.

What makes you think that he might not be leaving on the best of terms? Sounds like a good deal to me.

This is one case where I actually believe that he is leaving to spend more time with his family! Good for him (and the Mrs)

[JeffDM]

Originally Posted by Rayz

What makes you think that he might not be leaving on the best of terms? Sounds like a good deal to me.

This is one case where I actually believe that he is leaving to spend more time with his family! Good for him (and the Mrs)

It is easy to be cynical because it is a stock answer as to why someone is leaving a high profile position.

This time, it does sound like a plausible explanation that doesn't need much else to support it. Someone fleeing the position because of strife probably wouldn't be offered or accept a consulting gig for some of the same work.

[digitalclips]

Originally Posted by Rayz

Microsoft's budget for R & D stands at $8.2 billion .

Wow. You'd think they'd actually be able to do something original wouldn't you?

[reverie]

Airplane: The 4fold rise in cost charged for Steve Jobs' airplane could come from carbon certificates. I could imagine that Apple started buying those certificates in 2007 to set of the impact on the environment that the airplane has.