The Apple Brand

Vitaliy Katsenelson's picture

I want to make a quick comment about the Apple brand. Apple’s research and development expense was up 27% last quarter. Annualized, it is running at $5.7 billion. Let me put that in the right context. In 2007, when Apple came out with its first iPhone, the company’s R&D expense was at $782 million. Other than PCs, most of the R&D for which is outsourced to component providers (Intel, Western Digital, Micron etc.), Apple makes only one product, iPhones of different sizes. Increasing iPhone size from 4 inches to 4.7 inches should not consume billions of dollars in R&D, even for perfectionists like Apple. Thus the probability that Apple will introduce a brand new product category in the near future is incredibly high.

Unlike Samsung, which will introduce dozens of products a year and hope that a few of them stick, Apple is far more careful with product releases. Samsung’s strategy is fine – unless you are one of the unlucky people who wasted a few hundred dollars on Samsung’s smart watch, which looked like something out of Seiko’s 1980 catalog. The strength of Apple’s unbelievable brand (about which its customers tend to be fanatical) is driven by the fact that it doesn’t introduce unfinished products.

Samsung just introduced new phone, the S5 – it was the non-event of the year. When Apple introduces a new product, no other news exists that day. The Fed could announce the sudden termination of QE, the European Union could announce it was breaking up, and Russia might invade several more countries – and all those headlines would be less significant and lost in the news vortex on the day when Apple introduced a new… I don’t know, an iPhone in a different color.

That is an incredible brand. Think about how much money Apple saves on marketing. This is why my kids have plastered Apple stickers (the ones that come with iPads) all over my house, including on my front door.

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Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.

Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).