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What Tech's Biggest Companies Are Spending Their Money On

Continuous innovation is considered the best survival tactic for technology companies as they belong to a segment where the wave of disruption is the strongest. In fact, the amount of spending a company does on research and development is considered a measure of its willingness to stay ahead in the technology curve. Here’s some insight on the research and development spending, innovative ventures and acquisitions by the top four technology companies by market capitalization.

Apple, Inc.

Market Capitalization: $581.95 billion

Spending on R&D in 2015: $8.1 billion

R&D Spending as % of Revenue: 3.5%

Apple, Inc. (AAPL) is almost synonymous to innovation. Interestingly, its spending on research and development isn’t huge given the size of its revenue; it spent $8.1 billion on R&D in 2015. Apple deviates from the conventional thought that relates innovation to the amount of spending on R&D. Back in 1998, Steve Jobs said, “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it.”

The other reason is perhaps that it doesn’t need to spend much as suppliers who are competing for Apple’s business are spending huge amounts on R&D to come up with cutting-edge technology to qualify to be on its list of suppliers.

Apple has been very active with its acquisitions, although it isn’t vocal about it. However, during the Q2 2016 earnings conference, Tim Cook indicated about the 15 acquisitions the company had made in the last four quarters. Among those, there is a high percentage of companies that belong to fields of artificial intelligence, machine learning and augmented reality. He recently said, “We are high on AR for the long run, we think there's great things for customers and a great commercial opportunity.”

Alphabet, Inc.

Market Capitalization: $555.65 billion

Spending on R&D in 2015: $12.28 billion

R&D Spending as % of Revenue: 16.38%

Alphabet, Inc. (GOOGL, GOOG) is working on a number of exciting (and few outlandish) projects; starting from its ambitious “Lego style” modular smartphone under Project Ara to its experimentation with smart glasses and contact lens, Android Wear and Project Tango. Then there are the newer projects - conversational chatbot called Google Assistant as well as “Allo” and “Duo” – its messaging and video calling app. That’s not all - its artificial-intelligence program, AlphaGo has been in the limelight. In May, Google unveiled Daydream – a platform for high quality mobile virtual reality, coming this fall. The more established projects where it has made considerable progress are Google's self-driving cars and cloud computing.

Google’s 2011 annual report defines its approach, it says, “our product development philosophy is to launch innovative products early and often, and then iterate rapidly to make those products even better.” During 2013, its R&D expenses were at $7.13 billion which was 12.9% of its revenue, it increased to $9.83 billion and 14.9% in 2014 and at the end of 2015, it stood at $12.28 billion and 16.38% respectively. As per its latest annual report, it had 23,336 employees in research and development at the end of 2015 which was equivalent to almost 38% of its total employees.

Microsoft Corporation

Market Capitalization: $452.12 billion

Spending on R&D in 2015: $12.04 billion

R&D Spending as % of Revenue: 12.86%

Microsoft Corporation (MSFT) is committed to research and development across a spectrum of technologies, tools, and platforms for which it has been spending a significant portion of its revenue. It’s outlay towards research and development was $10.4 billion, $11.4 billion and $12 billion during 2013, 2014 and 2015 respectively which represents approximately 13% of its revenue each year.

It’s research and development efforts are directed towards cloud computing, hardware and device operating systems. The technology giant is also working towards the wider adoption of the blockchain technology which is seen as an inseparable part of future enterprises as well as virtual and augmented reality with products such as HoloLens. Microsoft has been active with inorganic growth options and has acquired 22 companies since the beginning of 2015 till now.

Facebook, Inc.

Market Capitalization: $358.61 billion

Spending on R&D in 2015: $4.81 billion

R&D Spending as % of Revenue: 26.83%

Facebook, Inc. (FB) is betting big on its building futuristic technology in the field of internet connectivity, virtual and augmented reality as well as artificial intelligence. The company’s research and development was whopping 26.83% of its revenue during 2015. Facebook’s Connectivity Lab is building new technologies – drones, wireless communication systems, aircrafts, and satellites – to connect the world. While it has already launched Gear VR which is powered by Oculus. Mark Zuckerberg is very passionate about virtual reality and wants to take the whole experience of social media and sharing to a new level with the help of technologies such as virtual reality and dynamic streaming. While speaking at the Samsung’s World Mobile Congress, he had said, “We are committed to build the best VR experiences in the world.”

Final Word

While these companies already have great projects and established products, they continue to innovate passionately and replace the existing systems. Although returns aren’t guaranteed, the organic and inorganic growth paths towards futuristic technologies will further consolidate their long-term positions in the industry.

Market capitalization as on August 10, 2016

The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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