Analyst ties uptick in Apple R&D spend to Apple Car, but relationship is tenuous

Posted:
in General Discussion edited May 2016
A report this week from noted Apple analyst Neil Cybart relates an increase in the company's massive research and development outlays suggest something big is in the works, but an industry insider says it's just business as usual.




In a post to his blog Above Avalon, Cybart on Wednesday concluded Apple's R&D spending, which stood at $2.51 billion or 5 percent of net sales for the March quarter, assumes the company will make its "largest pivot yet." In particular, Cybart makes the case that Apple's more than $10 billion in yearly R&D spend presages Apple Car.

On Thursday, former Windows chief turned A16z investment counsel Steven Sinofsky offered a counter argument, saying Cybart's conclusory post is a "dangerous attempt at curve fitting/correlation [does not imply] causation."

Over the course of an 11-part tweet storm, Sinofsky dismantled the idea of a near term pivot away from iPhone. The most cogent argument relates to the purported auto product's time horizon, or the time it will take to develop and ramp up to production.

One of Cybart's main contentions revolves around quarterly expense growth, which has ballooned dramatically over the past few years. Specifically, a pattern of sudden increases in spending can be tied to major product launches like iPhone, Apple Watch and now Project Titan, Cybart asserts.

"There are only a handful of logical explanations for Apple's current R&D expense trajectory, and all of them result in a radically different Apple. In a few years, we are no longer going to refer to Apple as the iPhone company," Cybart writes.

The question is whether such increases are in fact evidence of a pivot, or an inevitable byproduct of corporate growth.

For large companies like Apple, product breakthroughs "often take almost immaterial amounts of R&D spend," Sinfosky said, adding that current revenue is driven by previous R&D expense that might date back decades. Taking that notion a step further, the former Microsoft exec said it's difficult to reduce R&D outlays tied to successful products (iPhone), but increasing spend to maintain the same is "incredibly easy." For example, the features Apple adds to iPhone each refresh cycle needs to keep up with that platform's growth.

Cybart got in on the friendly Twitter discussion, telling Sinofsky that the original thesis was not based on R&D as function of revenue, but on absolute growth. He also argued that a majority of iPhone development likely took place in a span of three to five years. The Above Avalon post clearly classifies Project Titan as a long-term pivot, one Cybart believes will be incredibly important to Apple's overarching structure.

"I don't consider Titan to be just another project that Apple has been tinkering around with in the lab for years like an Apple television set or Apple Pencil," Cybart writes. "Instead, Project Titan is much more about building a foundation for Apple that will literally represent the company's future."

Whether a tech company with no prior experience in automotive can pivot to the heavy industry in such a short span, and on comparatively limited investment, remains unclear.

AppleInsider noted the uptick in R&D spending last month, but found the increase in line with historical company trends. Spend as a function of net sales is up two percent from Apple's average, but Sinofsky implies such shifts are inevitable.

"Maybe something big will happen or maybe not," Sinofsky said. "But it will be a coincidence either way."

Comments

  • Reply 1 of 10
    asdasdasdasd Posts: 5,267member
    Ten years for the iPhone?

     Next wasn't even bought at that stage. Then they had to build OS X. 
    palomine
  • Reply 2 of 10
    irelandireland Posts: 17,549member
    There's no debate to be had. Apple are building a car.
    leviSpamSandwichlolliverclock07palomine
  • Reply 3 of 10
    levilevi Posts: 344member
    The innovation will be a home button that actually takes you home
    lolliverradarthekatsquarebackjony0
  • Reply 4 of 10
    macarenamacarena Posts: 362member
    Apple is probably going to make an Apple Car or more likely a media/entertainment/navigation interface or console at some point.

    Apple is investing huge amounts in R&D as well. To move away from just being the iPhone company.

    But the real target of these investments is not a new product. The target of these investments is to reposition Apple as a services company. Where the iPhone, the iPad, Apple TV and Apple Watch are simply the channels you can use to enter and access these services.

    In 5 years time, the profits from hardware sales will be high - but will pale in comparison to Apple's services business profits. Apple will probably cut entry prices for its products significantly - and start focusing on volumes.

    Till today, Apple was selling all the phones it could possibly make - so there wasn't any need to cut prices. Now the game has changed, and Apple's strategy also will change. Launching the iPhone SE at the lowest ever price point for a phone is just the first shot from the Apple bow.

    Remember one thing - Tim Cook is a logistics guy. He isn't an ideas or innovation or products guy. His biggest contribution is to streamline logistics to such a ridiculous extent that Apple can sell huge volumes and make big margins.
  • Reply 5 of 10
    SpamSandwichSpamSandwich Posts: 30,860member
    macarena said:
    Apple is probably going to make an Apple Car or more likely a media/entertainment/navigation interface or console at some point.

    Apple is investing huge amounts in R&D as well. To move away from just being the iPhone company.

    But the real target of these investments is not a new product. The target of these investments is to reposition Apple as a services company. Where the iPhone, the iPad, Apple TV and Apple Watch are simply the channels you can use to enter and access these services.

    In 5 years time, the profits from hardware sales will be high - but will pale in comparison to Apple's services business profits. Apple will probably cut entry prices for its products significantly - and start focusing on volumes.

    Till today, Apple was selling all the phones it could possibly make - so there wasn't any need to cut prices. Now the game has changed, and Apple's strategy also will change. Launching the iPhone SE at the lowest ever price point for a phone is just the first shot from the Apple bow.

    Remember one thing - Tim Cook is a logistics guy. He isn't an ideas or innovation or products guy. His biggest contribution is to streamline logistics to such a ridiculous extent that Apple can sell huge volumes and make big margins.
    I wish Apple would buy their own airline or shipping company. The more parts of the supply chain they can own and control, the better.
  • Reply 6 of 10
    macarenamacarena Posts: 362member
    Apple has reached a point where it is better to make $100 per phone for 400 million phones than to make $200 per phone on 200 million phones.

    Because today, the contribution from services is kicking up dramatically. Selling more phones will ensure greater strength in the services space.

    iTunes Music, Books, Movies, Apps, Apple Music Subscriptions, Apple TV subscriptions, Apple Pay transactions, all of these will be higher with greater sales of phones. And obviously there will be more such initiatives - like Search, Maps, Advertising, and many more things.

    Apple can easily do a better job of the exact same things Google is doing, because they don't need to violate privacy or exploit user data or things like that. They are making money on the devices and the services revenue is simply the icing on the cake.


    lolliver
  • Reply 7 of 10
    clock07clock07 Posts: 39member
    Beyond doubt Apple Car is in the works. It should be wireless charging ready and certainly not self-driving junk, offering all possible connectivity of Apple devices within the vehicle ... The next step (wishfully) would be inception of maglev city tram, again offering all sorts of Apple connectivity with addition of being true WI-FI hotspots ...
  • Reply 8 of 10
    SpamSandwichSpamSandwich Posts: 30,860member
    macarena said:
    Apple has reached a point where it is better to make $100 per phone for 400 million phones than to make $200 per phone on 200 million phones.

    Because today, the contribution from services is kicking up dramatically. Selling more phones will ensure greater strength in the services space.

    iTunes Music, Books, Movies, Apps, Apple Music Subscriptions, Apple TV subscriptions, Apple Pay transactions, all of these will be higher with greater sales of phones. And obviously there will be more such initiatives - like Search, Maps, Advertising, and many more things.

    Apple can easily do a better job of the exact same things Google is doing, because they don't need to violate privacy or exploit user data or things like that. They are making money on the devices and the services revenue is simply the icing on the cake.


    For customers willing to spend less on the phone, they will also spend less on apps and services. Big spending customers are immune to price sensitivity and think nothing of paying more for everything.
  • Reply 9 of 10
    macarenamacarena Posts: 362member
    For customers willing to spend less on the phone, they will also spend less on apps and services. Big spending customers are immune to price sensitivity and think nothing of paying more for everything.
    This is simply an example of narrow minded past thinking. The future is entirely about ecosystems. And ecosystems aren't only about the high end customers who are ready to pay more. It is about getting in as many customers as you can, whoever is ready to pay. In fact, the more people that Apple can gather, the lower the price gets for everyone.

    If Apple allows someone else to capture a much larger ecosystem of lower end customers, they actually jeopardize their own future.

    Hopefully Apple will be smarter in their approach than you :-) And their pricing of iPhone SE with latest components, but still at the lowest ever pricing for an iPhone, is quite indicative of that!

    But more than anything else, I believe most of the Apple has the unique distinction of having highest customer satisfaction as well as highest customer hatred in the world. The same people who are satisfied with Apple, also invariably are pissed with Apple for its pricing strategies - not just of the phone, but also of the accessories. Every time my lightning cable frays out and I see Apple's crazy prices, I end up cursing Apple. In fact, if there was some simple way to do it, I would actively pursue a class action lawsuit against Apple's quality and pricing of Lightning cables. Especially because they are in violation of a European Union ruling to standardize on Chargers.
  • Reply 10 of 10
    isteelersisteelers Posts: 738member
    macarena said:
    This is simply an example of narrow minded past thinking. The future is entirely about ecosystems. And ecosystems aren't only about the high end customers who are ready to pay more. It is about getting in as many customers as you can, whoever is ready to pay. In fact, the more people that Apple can gather, the lower the price gets for everyone.

    If Apple allows someone else to capture a much larger ecosystem of lower end customers, they actually jeopardize their own future.

    Hopefully Apple will be smarter in their approach than you :-) And their pricing of iPhone SE with latest components, but still at the lowest ever pricing for an iPhone, is quite indicative of that!

    But more than anything else, I believe most of the Apple has the unique distinction of having highest customer satisfaction as well as highest customer hatred in the world. The same people who are satisfied with Apple, also invariably are pissed with Apple for its pricing strategies - not just of the phone, but also of the accessories. Every time my lightning cable frays out and I see Apple's crazy prices, I end up cursing Apple. In fact, if there was some simple way to do it, I would actively pursue a class action lawsuit against Apple's quality and pricing of Lightning cables. Especially because they are in violation of a European Union ruling to standardize on Chargers.
    You don't have to buy cables from Apple.  If Apple was violating anything they would have been charged by now. The EU would do anything to get their hands on Apple's money. 
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