Over the weekend, Mark Gurman of Bloomberg reported that Apple apparently set up a micro LED display lab in California to test and produce small series of the next generation of display technology, presumably for its iPhone and other devices. Apple previously acquired the microLED startup LuxVue in 2014.
The news of a secret research lab fits into a larger narrative about Apple's deeper and more expensive focus on research and development. Neil Cybart of Above Avalon, an Apple subscriber blog, noted that "Apple will spend $ 14 billion on research and development in FY2018, nearly twice as much as it spent on R & D four years ago," and also pointed out that the $ 1
That's unbelievable numbers for any business, but the scale of R & D spending is even extraordinary, especially Apple's R & D spending as a percentage of sales has been steadily rising in recent years, according to Cybart This year, despite higher revenues, is expected to reach a decade-high of 5.3%.
This percentage of revenue could be high for Apple, but it's remarkably low compared to technology peers, with companies like Google and Facebook giving more than that Doubling and sometimes trebling Apple's percentage of R & D revenue, part of which is Apple's sheer revenue and scale that allows Apple to recoup research and development through higher revenues than its competitors.
The more interesting However, observation has been that Apple has traditionally avoided the expensive R & D work in Ber such as chip design and display manufacturing. Instead, the company traditionally focuses on developing and integrating products that are certainly not cheap, but less expensive, than bringing a new LCD technology to market.
Apple does not produce wireless modems or power management systems for its phones, but instead uses components from companies such as Qualcomm, such as the iPhone X. Even highly praised features such as the screen of the iPhone X are not designed by Apple, but are designed and manufactured by others That in the case of the screen was Samsung display. Apple's added value was to integrate the display into the phone (the edgeless display) and to write the software that calibrated the color of the screen and ensured its exceptional quality.
For years, this integration-oriented R & D model has been a win-win for Apple. Due to its bargaining power, the company can use the best available technology at low prices. In addition, the R & D cost of these components can be amortized not only against iPhones, but also any other devices that use this technology. This meant Apple could use its resources to develop quality products and maintain some of the best margins in the hardware industry by avoiding some of the more costly research areas for its products.
This R & D model changed after Apple P.A. Almost exactly a decade ago for $ 278 million. Apple increasingly switched from an R & D strategy focused on product development to the key hardware components of its devices. No, where is this more visible than in the processor cores in the middle of the iPhone. The A11 Bionic processor in the iPhone X, for example, is completely custom-made by Apple and manufactured by TSMC.
In fact, the processor is an obvious place to integrate vertically because it provides so much of the device's other functionality and also has a big impact on battery life. For example, the FaceID function is powered by a "neural engine" component of the A11 chip.
There is a direct line between creating differentiated features that consumers recognize and are willing to achieve the highest dollar, and building types of custom components that Apple has shied away from in the past. The display is obviously a critical point of differentiation, so it should come as no surprise that Apple wants to increasingly bring this technology internally so it can compete better with Samsung .
So, Apple spends more on R & D to increase differentiation – sounds good. In fact, a narrative of these issues is that Apple is investing from a position of strength. By sheer willpower, she has become one of the most valuable companies in the world, dominating many of the markets in which she competes, especially smartphones. It has incredible brand loyalty with millions of customers and sees the opportunity to expand into new device categories such as automotive to grow and own more markets. In other words, it is expanding R & D to drive growth.
The more negative the view is that Apple is struggling to keep its shrinking smartphone industry, and the rising R & D spending is really a defensive maneuver to protect its high selling prices (and therefore margins) against significantly cheaper competitors offering almost equivalent functionality. Apple's proprietary hardware serves its exclusive functions, and this creates the differentiation needed to sustain revenue in the future.
There is truth in both stories, but one thing is certain: The pressure on Apple's margin is increasing. While iPhone X sales are under suspicion, many analysts believe that sales have been weaker than expected due to the high cost of the device. If true, higher prices will not be able to offset higher research and development costs, and the combination will put Apple's future smartphone innovation more in the limp than the company before.
It seems obvious that a company with hundreds of billions of dollars in balance sheet should invest more of it in R & D initiatives such as microLED. However, analysts pay attention not only to sales, but also to profit margins. Apple's rising spending and declining sales indicate that there will be more financial issues for the company.