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A Surprising R&D Chart

Tyler Durden's picture




 

When it comes to staying relevant (and profitable) in today's rapidly changing technological world, one of the key requirements is constantly being one step ahead of the competition. Which, for tech stocks, implies investing significantly in research and development. So, off the top of one's head, when one thinks who invests more in R&D as a percent of revenue, say between Nokia - which failed to innovate fast enough and as a result got run over, and Apple - which is best known for its innovative (if NSA infiltration-riddled) products, one would be tempted to say Apple. However, the reality is quite the opposite. As the chart below shows, when plotting the R&D to sales ratio for the diametrically opposite Nokia and Apple, one sees a constant increase in research spending at Nokia on one hand, and a consistent decline at Apple, on the other.

So what is the explanation? Is it "spend smart not hard", or maybe Nokia's products were so ahead of their time that nobody could appreciate them at their time, or perhaps what we are now seeing is Apple merely resting (actually sleeping deeply) on its once innovative laurels - too focused on what balance sheet gimmick it should come up with to make its activist investors happy - and its lack of spending for innovation is precisely that, because when a company is forced to resort to imitating its formerly biggest imitators such as Samsung, or making a phone cover an upgrade feature, then it is only a matter of time before Apple, too, is just another Nokia.

But then again what do we know: after all, as Carl Icahn has said about 30 times in the past 24 hours, buying AAPL here, and its declining desire to invest in R&D, is the biggest "no brainer" trade out there. Whatever that means.

 

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Thu, 01/23/2014 - 19:25 | 4360647 maskone909
maskone909's picture

from Nokia's perspective, it is difficult to compete with a GSE (government sponsored enterprise) like AAPL. 

Thu, 01/23/2014 - 19:30 | 4360675 ghengis86
ghengis86's picture

Difficult to compete with the NSA.

FIFY

Thu, 01/23/2014 - 19:42 | 4360712 SafelyGraze
SafelyGraze's picture

the amount spent on acquiring patents

that is the replacement for R&D

hugs,
sergei & eric

 

Thu, 01/23/2014 - 19:46 | 4360716 James_Cole
James_Cole's picture

2013: Samsung, 10.4B / Microsoft 9.8B / Nokia, 6.1B / Apple 4.5B (highest its ever spent)

Thu, 01/23/2014 - 21:07 | 4360949 mjcOH1
mjcOH1's picture

The chart better represents declining sales than commitment to R&D spending.  

Apple sales were skyrocketing as Nokia sales crumbled.

 

You could just as easily graph 'Total salaries paid as a percentage of sales' with a byline 'Sometimes paying your staff just isn't enough'.

 

Fri, 01/24/2014 - 01:00 | 4361696 Fukushima Sam
Fukushima Sam's picture

Ironic how Jobs both created a cancer and died from one...

Thu, 01/23/2014 - 19:24 | 4360648 HedgeAccordingly
HedgeAccordingly's picture

Need more non tax payers...  Treasury Sec. Lew to Bloomberg: Congress working on immigration, infrastructure in 2014 http://hedge.ly/KNau1U

Thu, 01/23/2014 - 19:28 | 4360665 DoChenRollingBearing
DoChenRollingBearing's picture

For a non-expert like me that R & D chart is a little surprising.  Of course, we importers in Peru farm out automotive R & D to Asia.  They have engineers who work with the OEMs (Hyundai, etc.) after all.  We look to them to help us buy.  And 2013 was a good year, roughly matching Peru's growth rate (5% sales growth for us and +/- 5% economic growth in Peru).

"2013 Ameru Results"

http://tinyurl.com/m7tg7gb

Thu, 01/23/2014 - 19:37 | 4360698 EscapeKey
EscapeKey's picture

Not to me. Apple has seen surging revenue, which with reasonably static growth would bring the percentage down.

Nokia's revenue, however, has been cratering.

Thu, 01/23/2014 - 19:49 | 4360723 DoChenRollingBearing
DoChenRollingBearing's picture

EscapeKey

That is a great reason why I like ZH so much, lots of people who know a lot of things I do not.

Our own family contributed to Apple sales in 2011 and 2012.  I like my kitco.com app...

EDIT:

http://ounce.me

http://zerohedge.com (comes out just fine on my iPhone, small letters, but you can tap to make them bigger)

And my email...

Thu, 01/23/2014 - 19:47 | 4360724 James_Cole
James_Cole's picture

Yep..

Thu, 01/23/2014 - 20:25 | 4360825 RECISION
RECISION's picture

Exactly.

Bullshit article - lies, damn lies and statistics.

Apple investment in R&D is actually increasing.

But their revenues are increasing even faster, so as a percentage it looks like a fall - IF you want to look at it that way.

But why would you, unless you have a hidden agenda to push - and are full of shit.

The proof is in the comparison to Nokia, which as just stated has cratering revenue.

... deliberate obfuscation.

Thu, 01/23/2014 - 20:35 | 4360853 fxrxexexdxoxmx
fxrxexexdxoxmx's picture
  1. Apple sucks. So did Jobs. Fuck Apple and the douch fan boys who drool over their products.
Thu, 01/23/2014 - 19:28 | 4360667 ghengis86
ghengis86's picture

My old Nokia cell phone was a tank, could make phone calls, send text messages and had a removable battery.

Why the fuck did I ever get a "smart" phone? That trade was a "no brainer" and I fucked it up.

Still pissed at myself...

Thu, 01/23/2014 - 19:32 | 4360678 overexposed
overexposed's picture

NOK is a thousand times more innovative than AAPL these days, which is pretty sad for AAPL.

Disclaimer: I'm long NOK.

Thu, 01/23/2014 - 19:38 | 4360702 hmmmstrange
hmmmstrange's picture

What is sad is apple banning bitcoin on their phones.

Thu, 01/23/2014 - 19:37 | 4360688 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Quality vs quantity. A good product also needs marketing behind it think VHS vs. Betamax. These require smart people, Apple had an exceptional one in Steve Jobs who did Nokia have.

Thu, 01/23/2014 - 19:35 | 4360691 drink or die
drink or die's picture

This chart is misleading, Nokia's sales are almost nothing compared to Apple's.  To compete in the high-tech market, you need a baseline amount of R&D, which is what Nokias numbers represent.

In this case, the raw R&D expendatures per market (cell phone, computers, etc) is what matters.  I bet those numbers still have Apple spending large amounts more than Nokia.

Thu, 01/23/2014 - 19:40 | 4360704 swmnguy
swmnguy's picture

In that case, it's just that Nokia's R&D is returning a lot less in sales, proportionately, than AAPL's.

Fri, 01/24/2014 - 05:14 | 4361937 css1971
css1971's picture

Nope. In absolute terms Nokia still spends more than Apple, even though they killed symbian and made large cuts.

Thu, 01/23/2014 - 19:40 | 4360705 Goldilocks
Goldilocks's picture

The Black Eyed Peas - Let's Get Retarded (Live From Sydney To Vegas)
http://www.youtube.com/watch?v=LiuH03U7WBU (8:43)

Thu, 01/23/2014 - 19:44 | 4360708 Dr. Engali
Dr. Engali's picture

I think like any successful company the bureaucracies grow so large, cumbersome, and protective of their fiefdoms that creativity gets squelched. Look at how much digital fiat currency Microsoft throws at R&D yet nothing earth shattering can be produced by that company. They have to buy up smaller companies and patents in order to secure future revenue streams. My guess is that Apple is undergoing the same problems.

Having said that, as a percent of revenues, especially when compared to Nokia's, they are still spending a bunch of funny money on research.

Thu, 01/23/2014 - 19:49 | 4360736 Goldilocks
Goldilocks's picture

bean counting software has already been developed, ... mission accomplished

Thu, 01/23/2014 - 19:47 | 4360727 Grassfed
Grassfed's picture

Stupid article.  Apple sales up 20 times in ten years, Nokia essentially flat.  Apple sales are more than four times Nokia.  Implying that Apple is sleeping from R&D % comparisons is silly.

Thu, 01/23/2014 - 19:48 | 4360728 Grassfed
Grassfed's picture

Stupid article.  Apple sales up 20 times in ten years, Nokia essentially flat.  Apple sales are more than four times Nokia.  Implying that Apple is sleeping from R&D % comparisons is silly.

Thu, 01/23/2014 - 19:52 | 4360744 buzzsaw99
buzzsaw99's picture

Carl "the icunt" Icahn.

Thu, 01/23/2014 - 19:53 | 4360745 SuitablyIronicM...
SuitablyIronicMoniker's picture

Nokia spent $8 billion on R&D in 2011. They have since cut this to around $6 billion, still a huge figure.

Apple recently announced an increase in R&D of a third, to $4 billion. Less than Nokia, but substantial. The difference in the ratio of R&D to income is solely due to the income side of the equation.

Apple may have peaked, but Nokia is not doing well.

Thu, 01/23/2014 - 20:39 | 4360865 Constitutional ...
Constitutional Republic's picture

In my opinion, Nokia has another advantage: demographics. An ageing population wants simplicity rather than gadgetry, and Nokia excel at that. Who has the money? The older generation. 

RIP, Steve Jobs. You understood the zeitgeist for beautiful, functional technology, far superior to the Gates trap designed to serve Big Brother.

Thu, 01/23/2014 - 20:50 | 4360901 AmCockerSpaniel
AmCockerSpaniel's picture

It's how the chart is made. It's in percentage of gross spent on R&D. As the amount of income changes the percent changes. Apple had a large increase of earnings, and Nokia just the opposite. So the ratio of R&D to gross earnings changed, and not the dollar amount spent on R&D.

Thu, 01/23/2014 - 22:32 | 4361234 Stuck on Zero
Stuck on Zero's picture

Sometimes you need less R&D and more pizzazz.

 

Thu, 01/23/2014 - 23:46 | 4361532 IllusionOfChoice
IllusionOfChoice's picture

It's called owning/creating a market segment. Apple rode the wave of popularity of portable personal electronics and strongly influenced the evolution of their industry. They got exponential returns on a technology investment with media licensing. Nokia recently and Apple recently don't even compare. It would be more fair to compare them when Nokia was creating and owning the cell phone market.

Fri, 01/24/2014 - 01:52 | 4361769 DeliciousSteak
DeliciousSteak's picture

Nokia came up with the current classic and popular smartphone design in 1996, but concluded that it would never gain popularity and scrapped it because they couldn't imagine the "future person" walking around with what was considered a terminal too large yet too small for practical use(which it probably was for the technological and entertainment needs/uses of the time). Yep, ahead of their time, but talk about a blunder.

Fri, 01/24/2014 - 02:38 | 4361838 draghithebearslayer
draghithebearslayer's picture

what a retarded analysis. the correct answer is because nokia's sales dropped precipitously while apple's sales skyrocketed. you can only spend so much on developing new products one or two generations ahead, while you could increase your sales by many multiples for few years in a row if you're entering a new industry.

Fri, 01/24/2014 - 05:09 | 4361932 css1971
css1971's picture

Not very surprising.

(note I was long NOK till about 3 weeks ago when I emptied my equity portfolio entirely. I'll be buying them back on discount)

Apple is well known for not innovating anything. No they didn't invent the smartphone, no they weren't first with capacitative touch screens. What Apple do is follow trends and polish the product. Which makes for a nice but not innovative phone. Note this is exactly what Microsoft did before them too. No innovation there either.

Nokia on the other hand totally dropped the ball. They have always been innovators but often what they innovate never makes it to market. They had tablets and touchscreen phones years before Apple, but they were never marketed. Today they already have wearables:

http://www.engadget.com/2013/10/17/nokia-watch-patent-application-wearab...

This looks clunky because it is. It's an engineering prototype, but what's cool about it is not the physical form factor, but that you have several completely independent devices communicating seamlessly to provide an application. Will you ever see this? Only the Nokia leadership know.

Sat, 01/25/2014 - 05:44 | 4366056 shawnmike
shawnmike's picture

Meanwhile the controlled sell-off in US equities is just that, completely controlled, and ready for the late day ramp. All while they go mad for bonds. Whatever, don't think anyone's jumping from windows on Wall Street just yet

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