Could the development of an autonomous vehicle finally lead Apple to narrow the gap in research-and-development spending with Google?
It looks like it, at least based on the companies’ latest quarterly filings, especially as execs at Alphabet — Google’s recently organized parent company — signal that they want more bang from the considerable bucks the company has poured into R&D in the past.
Apple is on track to spend a record $10 billion on R&D this year. And the pace of spending began to increase after Apple’s September 2015 quarterly report; it was in late 2015 that rumors began to circulate that Apple had begun work on a super-secret electric vehicle project.
Neither Google nor Apple disclose how much of their R&D budgets go toward specific programs — and Apple, being Apple, has been tight-lipped about its automotive ambitious.
This said, there have been lots of indications that Apple’s program is a major one, with facilities being set up domestically and overseas; the poaching of top talent from Tesla and Google; and high-level talks with automakers.
Meanwhile, Alphabet has indicated that it might start tightening the purse strings at its famously whimsical “X” research division, informally known as the “moonshot factory.” This reportedly is one of the main directives from CFO Ruth Porat, who took the reins at Alphabet about a year ago.
After years of climbing at a considerable pace, R&D spending at Alphabet appeared to level off in the first quarter of 2016 at about $3.34 billion, comparable to the average quarterly spend the previous year. (Its full 2nd quarter report has not yet been released.)
Still, Apple spends considerably less than its most prominent Silicon Valley neighbors, Alphabet and Amazon, both in absolute numbers and especially as a share of revenue. In 2015, Apple — which still makes a lot more money than Alphabet — spent just 3 percent of its revenue on R&D, while Alphabet spent 16 percent, according to public filings.
If belt-tightening is underway at Alphabet, it seems unlikely if that will come at the expense of its Self-Driving Car Project. Since 2009, the company has invested substantial sums in the program, and it provides regular updates on how many miles its test vehicles have logged and others milestones.
Not that Wall Street has been put off by Alphabet’s research-intensive approach, thank in large part to the piles of cash from Google-related advertising. Alphabet’s stock has over past few years been on a steady climb, overtaking Apple in market capitalization several times this year.
Apple’s stock, meanwhile, has been hurting as iPhone sales sag and investors grow wary that it may not have any new blockbuster gadgets up its sleeve. An Apple car of some variety would, of course, be another whole order of magnitude. Given the secrecy that has surrounded the car project, it’s no wonder Apple’s stock has been so volatile of late.