Apple’s Investments in R&D and the Future

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The most common recent complaint about Apple, especially among the tech media and Apple enthusiasts, tends to be a perceived lack of innovation in recent years. Much of this is based on the fact that Apple made huge strides in several core computing and mobile tech categories from the late 1990s to the 2010s under the leadership of Steve Jobs.

While it is true that Apple hasn’t an iPhone or iPad-level hit since Jobs’ passing, it isn’t as if the company is standing still. The Watch has become a nice slow-burn success story, the Mac is still selling strong, iPad sales are turning around, Apple now has a fast-growing Services business, and they are closing in on becoming the first company in the world with a trillion dollar valuation, as well. However, while all of that can’t be dismissed, the lack of a slam dunk product over the last 7 years, some high-profile struggles with software, and the current negative impressions of Siri feed this lack of innovation narrative.

A change in philosophy

Again, it is hard to ignore the fact that Apple’s current success isn’t based on groundbreaking new products. Frankly, that is a much harder task these days, which is backed up by the fact that many other manufactures like Samsung are iterating as much as innovating at the moment. Apple conquered many of the tech categories that were ripe for expansion and innovation during their two decade hit run. Their success created a major shift in the industry and how other companies approach both design and marketing. Apple’s competitors got smarter and took notice that a focus on product quality, style, and presentation matters to customers. Because of this, Apple faces a level of competition right now that just didn’t exist under Jobs.

We don’t see directly behind the scenes at Apple, but there is mounting evidence that Apple is looking to change things up by making some splashes in key new areas in the coming years. While Apple used to spend relative little on R&D for a company of their size, that is changing. In 2016, Apple’s R&D budget was $10 billion, which worked out to only 5% of their revenue. In comparison, other tech companies are typically spending between 8% and 22% of revenue on R&D. Now, most of those companies don’t have the revenue that Apple does, so Apple is spending around the same dollar amount as their major competitors. However, since Apple has already plowed the wide-open fields that were available to them, it’s high time for them to step up their game.

According to Neil Cybart of Above Avalon, Apple is doing exactly that, and is actually on track to become the biggest spender on R&D in the world. That $10 billion two years ago is on track to increase to $14 billion this year. The chart below really tells the story of Apple’s spending over the long haul.

Photo Source: Above Avalon

So where is this increasing amount of money going? There have been several stories in recent days talking about new areas that Apple is looking into.

MicroLED Screens

This has been a big tech story in recent days, as rumors have come to light of a “secret” Apple facility in California that is working on developing MicroLED screens. This new technology is seen as the next generational leap in screen tech, and Apple’s work in this area should position them as one of the early leaders when the tech is ready for prime time.

This is a BIG shift for Apple, as they have depended on others to supply them with screens for their devices. They have often had a hand in designing their own screens and in refining the products that they purchase from others. Examples such as the original Retina Display on the iPhone 4 and the Samsung-supplied OLED screens on the iPhone X come to mind, as Apple had an active role in the software and technology that set the hardware components apart.

While Apple has made the hardware of others their own in the past, their work on MicroLED points to a shift. While it is unlikely that Apple would actually manufacture screens for their devices en masse, this investment points to them directly designing all aspects of the screen hardware for the first time. This will give Apple a level of control that they have never had, and it could potentially get them to market much faster than usual. This should also help them avoid shortages or situations where they are at the mercy of suppliers. The latter is key, since some of these suppliers are also major competitors.

Bloomberg’s Mark Gurman says that the MicroLED development process is difficult enough that Apple almost dropped the project at one point. However, they are evidently making progress and are at an “advanced stage” now. However, Gurman pointed out that we may not see MicroLED as part of an Apple device for a few years.

3D Sensing

According to a report by Reuters, parts suppliers are saying that Apple has a two-year lead in 3D sensing technology, thanks to Face ID and the components involved in it. This shows that Apple has been heavily invested in this technology for quite a while, evidenced by their acquisitions of companies like RealFace, Faceshift, and Emotient. We can see the early fruit of these investments not only in Face ID, but also in parallel technologies like Animoji. We can also see the impact in ARKit and Apple’s early push into Augmented Reality tech.

However, this is definitely not where the story ends for Apple with 3D sensing. In fact, this is likely just the beginning. Apple’s AR investments and acquisitions seem to be picking up, rather than slowing down. Their purchases of SensoMotoric and Vrvina point directly to Apple’s rumored development of AR Glasses. This is just the kind of groundbreaking product that consumers came to expect from Apple during their run of hits, so I think it is a natural target for the company. If you follow the money, it points directly to Apple preparing to make another big splash.

A foldable iPhone?

According to CNBC, Bank of America Merrill Lynch believes that Apple is already working with its parts suppliers on a foldable phone for release in 2020. They evidently like this news enough to base their “buy rating” for Apple stock on it. While they aren’t known for leaking or uncovering Apple information the way that Mark Gurman or Ming-Chi Kuo are, their stature in the investment community and their confidence makes me think there is something to this.

There is also the fact that the entire smartphone industry seems to be trending in this direction. There are reports that others, such a Microsoft and Samsung, could release devices with some type of foldable display as early as this Fall. Even though these would be early versions of the technology, it shows where the puck is already headed. Based on this report, Apple may not be on the bleeding edge of this shift, but they aren’t going to be left behind, either.

Self-driving car technology

I won’t rehash all of the years of rumors and leaks about Apple’s car project, codenamed Project Titan. There has been plenty of that over the years. What we do have a pretty good idea of at this point is that Apple looked into producing a car early on in the project, but that they are currently focused on the software and intelligence used to power self-driving cars.

While Apple has been seen as lacking or well behind other brands in the self-driving car race, such as Google, Uber, and Tesla, it is clear that this is still an R&D focus for Apple. According to 9to5Mac and The Financial Times, Apple is continuing to ramp up their self-driving fleet. What was 27 cars in California earlier this year is now up to 45 now. This actually puts Apple ahead of both Tesla and Uber in the number of cars actively on the road at this point.

According to AppleInsider, Apple has also been busy filing patents surrounding their work in self-driving cars. One such patent relates to “Gesture-based control of autonomous vehicles,” which certainly sounds interesting. You always have to take Apple patents with a grain of salt, because they make many filings surrounding research that will never materialize into actual products. However, they definitely are an indication that Apple is NOT out of the self-driving car race just yet. If they continue to ramp up their spending, they can continue to stay in the game and deliver a competitive product.

Conclusion

We don’t always get longer term projections of what Apple is up to because of the company’s focus on secrecy. However, these various reports and patents combined with Apple’s rapid increase in R&D budget shows us a picture of a company that is no longer resting on its laurels and sticking to its past methods. While there were very successful for many years with this formula, the market and level of competition have changed, and they must also change accordingly.

There is no way to predict if Apple shift in spending and investment will pay off. It could lead to a new wave of groundbreaking product successes, or they could fall behind despite these new efforts. What we do know is that Apple’s philosophy is changing, and that they do seem to be investing in new and exciting areas that seem like logical next steps for them. Now if they can just take some of that growing amount of R&D money and use it to fix Siri, they may be on to something.


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