Apple just had an amazing quarter of earnings.
The company, overall, is in great shape in the hands of its CEO, Tim Cook.
The Verge noted in an article that “Tim Cook’s Apple is now worth twice as much as Steve Jobs’ Apple three years after his death, with enough cash to buy all 319 million Americans a $599 stainless steel Watch.”
Here are some numbers from the earnings report, just so you could see how much Apple blew expectations out of the water…
Data compiled by Bloomberg:
- EPS: $2.33, up 40%, versus $2.16 expected
- Revenue: $58.01 billion, up 27%, versus $56.03 billion expected
- iPhone units: 61.2 million, up 40%, versus 58.1 million expected
- iPhone ASP: $658.53
- iPad units: 12.62 million, down 23%, versus 13.6 million expected
- iPad ASP: $430
- Mac units: 4.56 million versus 4.7 million expected
- Gross margin: 40.8% versus 39.5% expected
- Q3 revenue forecast: $46-$48 billion versus $47 billion expected
- Cash on hand: $194 billion
A table from Apple with all the key product units broken out…
We’ve lightly annotated it to highlight some important points:
Now, these results are great – amazing, in fact.
Apple shareholders love the company now more than ever before.
BUT, we think there’s something very important that Apple included in their earnings report… which the company may or may not have intentionally buried: the fact that Apple’s research and development expenditure had increased 35% from last year.
In the earnings call with analysts, Apple’s CFO Luca Maestri even said that Apple has got no plans to decelerate the company’s outsized R&D budget (emphasis ours):
Katy Huberty from Morgan Stanley: R&D well ahead of revenue, what is driving that? Bigger bets?
Luca: We said several times, look at current product portfolio, we now develop two iPhones, two iPads, we have Apple Watch, we are also developing some core foundational technologies. Also spending ahead of products that generate revenue. When you combine, that is why you see R&D increases year over year. Innovation is core of company. Look at last 2 quarters, revenue growth higher than OP EX growth. Expense to revenue ratio lower than a year ago, some thing we consider competitive.
Make no mistake here: company R&D expenditures don’t just increase 35% over the course of a year, unless it is trying to build an entirely new product category – one that it never had experience building before.
In the case of Apple, that could only mean one product: the Apple Car.
The Car, currently codenamed “Project Titan” within Apple, is rumored to be the company’s first foray into the automobile industry (hardware-wise, excluding Apple’s own CarPlay software), and will feature an electric powered vehicle that takes on the shape of a minivan. Other rumored features include a self-driving mechanism, as well as innovations that would, according to an employee, give “Tesla a run for its money.”
The project is currently led by Apple’s VP of Product Design Steve Zadesky, who, according to earlier reports, has Cook’s permission to recruit as many as 1,000 employees (most of them already working at Apple) for the project. According to Bloomberg‘s Tim Higgins, Apple plans to release the Car in 2020, following a five year development period.
So, there we have it: the reason why Apple’s budget increased 35% y/o/y.
Of course, nothing is confirmed at this point – Apple may even scrape the entire project at the last minute.
But there’s no denying that something huge – revolutionary – is going on at Apple now.