Apple's projected 2018 R&D costs of ~$14B, up nearly 2x in 4 years and at a 14-year high as a percentage of revenue, hint at Apple's growing product ambitions
After a brief lull, Apple's R&D expenditures are once again exploding higher. Apple's 2Q18 financial guidance implies … Tweets: @tim , @artasbartas , and @neilcybart Tweets: Tim Bradshaw / @tim : “It is estimated that Apple spent $150m to build the first iPhone in the mid-2000s. Nearly 10 years later, Apple finds itself spending that much money developing one show for its upcoming video streaming service.” Good @neilcybart breakdown of Apple R&D https://www.aboveavalon.com/ ... Artas Bartas / @artasbartas : @Techmeme @sammywalrusIV Or perhaps it's the sign of declining marginal utility: it takes more and more $$$ to improve an old product, while new products are nowhere to be seen... Neil Cybart / @neilcybart : New @AboveAvalon article: An Apple R&D Bonanza http://www.aboveavalon.com/... The dramatic rise in Apple R&D expenditures raises questions regarding the company's product pipeline and whether management's overall approach to R&D is changing.
Context & Ripple Effects
Neil Cybart's Above Avalon has been tracking this ramp for years: back in 2016 he flagged Apple's R&D already above $10B and up from 2.6% of revenue in 2013 as evidence of a pivot away from an iPhone-only business model. The new projection — roughly $14B for 2018, nearly double the 2014 level and a 14-year high as a share of revenue — confirms the lull was temporary, not a plateau.
What makes the timing notable is the backdrop: a quarter earlier Apple reported declining iPhone and iPad unit sales while services grew 18% YoY, and Tim Bradshaw's comparison captures where the money is going — Apple once spent an estimated $150M developing the entire first iPhone, and now spends roughly that on a single show for its upcoming video service.
First-order effects
- Apple's own 2Q18 guidance implies the spend, so the company is committing to elevated R&D even while its core hardware units shrink — the budget is being redirected toward services and unannounced products rather than defending the iPhone line.
Second-order effects
- Content studios and component suppliers gain a buyer whose per-project budgets now rival what Apple once spent on whole devices, shifting pricing power toward whoever supplies the inputs to Apple's next category bet.
Third-order effects
- The pattern holds across the corpus: R&D intensity ratcheted to a $16B pace by 2019 and then to 10.3% of revenue by 2026 amid the AI boom — each cycle resets the baseline higher and never returns, making heavy R&D a permanent cost structure rather than a cyclical investment.
The trend: Apple's R&D intensity has climbed monotonically for over a decade, with each product transition — services, then AI — establishing a new, permanently higher floor.