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Microsoft Innovation Surge Helps Trigger $10Bn R&D Spend by Apple Inc. (AAPL)

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Apple Inc. has made a huge expenditure of around $10bn on its research and development for the fiscal year ended September 24. This suggests that something big is being cooked up, but what raises concern is whether its investment is paying off.

Apple’s R&D budget – how big is it?

The sum Apple Inc. invested in R&D is really eye-popping, and is much more than 43% of the companies on the S&P roster, notes the WSJ. It went up by 25% in comparison with last year. But, what makes it more notable is the fact that Apple saw a decline of 8% in its revenue in that time.

Apple Inc. (NASDAQ:AAPL) Store

Still all things are relative for the largest company in the world. It spent just 5% of its total revenue for the year on R&D – the lowest among the top ten largest companies by market cap. Major tech companies such as Amazon, Alphabet and Microsoft spent just 14% of their trailing 12-month revenue on R&D, while Facebook spent 24% of its trailing revenue on R&D, notes The WSJ.

However, just because a company is throwing money does not guarantee that it will come with good innovation. Also, the impact of R&D spending is not the same on all business models. For example, the chipmaker Qualcomm spends relatively high amount on R&D in proportion to its revenue. That gives boost to a large licensing business from which the company generates bulk of its operating profit.

Just like other tech giants, Apple supplements some of its R&D activities with huge capital expenditures that totaled $12.8bn in the latest fiscal year. And, in its latest 10-K filing – it expects it to grow to $16bn in the current year.

Apple vs. Microsoft – who was the winner?

Apple Inc. has a reputation when it comes to innovation, often touting that it discards many ideas to concentrate on a few. A recent proof of it is – the company reportedly scaled back its car project, and hasn’t yet come with an oft-rumored TV set. However, the recent clash of Apple and Microsoft does raises question on Apple’s R&D spending.

This week saw the unveiling of new computers for professionals from both Apple and Microsoft. The hardware of the two companies differs significantly, but they are selling new PCs in very similar manner as is evident from MacBook Pro’s overview from Apple and Microsoft’s introduction of the Surface Studio.

While one has a Jony Ive voiceover and other has a dramatic cover of ‘Pure Imagination,’ but the general arc of the videos is the narrative they are trying to tell the consumer, which is precisely the same, notes The Verge. Reactions to the two videos are the most interesting. One from Apple seems unremarkable, but that of Microsoft is genuinely exciting.

Also, many experts claimed that Apple’s event compared with that of Microsoft, was hugely underwhelming. “Microsoft: Here is the future of the desktop for creatives & professionals; Apple: Here’s a year-old CPU and an emoji bar for $200 more,” read one tweet Christian Correa.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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