Apple triples R&D budget to $10bn for biggest pivot yet: Project Titan

12 May 2016

Just like with the iPhone in 2007, Apple is gearing up to pivot into a whole new industry. Hold onto your seats!

Apple’s fabled product secrecy is a key ingredient in its success, but something big must be on the cards considering the company’s R&D budget has grown from $3bn to $10bn in four years. That big pivot could be Apple’s electric car ambition, codenamed Project Titan.

“Can’t innovate anymore, my ass,” were Apple marketing boss Phil Schiller’s memorable words during a segment at Apple’s 2013 WWDC keynote where the company unveiled the cylinder-like Mac Pro machine.

At a time when Apple’s non-stop cycle of growth since the iPhone seems to have stalled, as its Q1 results demonstrated, there are lots of questions about what’s coming next from Apple.

‘Apple is now on track to spend more than $10bn on R&D in 2016, up nearly 30pc from 2015’

Aside from a few surprise moves like an Apple Watch and 12.9-inch iPad Pro last year to a dinky iPhone SE this year, Apple is under increasing scrutiny to do something amazing like it did in 2007 when the iPhone was launched.

Since the passing of Steve Jobs in 2011, CEO Tim Cook has presided over the biggest growth quarters in Apple’s history. A cycle of growth that appeared to have ended in the most recent quarter.

But, according to one Apple analyst Neil Cybart, author of the Above Avalon blog, Apple is spending on R&D at levels never seen before in its history.

Cybart points to Apple’s veil of secrecy. Unlike most Silicon Valley giants, such as Facebook, which lays out its 10-year product vision in advance, Apple keeps its cards close to its chest.

Is Apple preparing to jump into a whole new industry?

But he wonders why Silicon Valley isn’t paying greater attention to the surge in R&D spending at Apple.

“Apple is now on track to spend more than $10bn on R&D in 2016, up nearly 30pc from 2015 and ahead of even my aggressive estimate. This is a remarkable feat considering that Apple was spending a little over $3bn per year on R&D just four years ago.”

Cybart points out that Apple’s R&D expense trajectory is actually outpacing revenue growth and Apple is on track to approach a multi-decade record in terms of the amount spent on R&D as a percentage of revenue.

‘Apple is telling us that they are working on something very big, and yet no one seems to notice or care. I find that intriguing’

But he points to a key reason for Apple’s secrecy: R&D is its business model.

“Being open about future product plans will likely have a negative impact on near-term Apple hardware sales. Companies like Facebook and Google don’t suffer from a similar risk. The end result is that there is a legitimate disconnect between Apple’s R&D trends and the consensus view of the company’s product pipeline. Apple is telling us that they are working on something very big, and yet no one seems to notice or care. I find that intriguing,” Cybart said.

So, what could be next? Apple takes great pride in the design of its products, from diminutive and sleek MacBooks to iPhone devices that set the standard for others to follow.

Project Titan could be a long-term pivot

Rumours of an actual Apple television have been with us for the best part of a decade now, while it is no secret that Apple has been building up its competencies to take on the automotive industry under the enigmatically titled Project Titan.

Whether the latter strategy means an actual Apple car or not, that is the aspect that has captured most people’s imaginations: an electric, self-driving vehicle from Apple.

While Cybart offers a number of potential reasons for the increase in R&D spending, he surmises that the sudden and dramatic increase is the result of new product initiatives.

After studying the cycle times from which products like the iPhone, iPad and Apple Watch eventually spawned, Cybart says Apple began working on something big in 2014.

The company, he says, is designed to move from product to product, industry to industry and, just like how Apple entered the mobile phone business in 2007 with the iPhone, Apple is ramping up to enter a new industry. Most likely, this will be the car industry.

“We see the company do just that by entering the smartphone market, followed by the wearables market and soon, the auto market,” said Cybart.

He added that Project Titan is not just any R&D project.

“In reality, people are grossly underestimating the odds that Project Titan will lead to Apple actually shipping an electric car. At this point, I peg odds of Apple selling its own electric car to be at least 80pc. There is one very simple reason for my high degree of confidence: Project Titan is a long-term pivot.

“I don’t consider Titan to be just another project that Apple has been tinkering around with in the lab for years like an Apple television set or Apple Pencil. Instead, Project Titan is much more about building a foundation for Apple that will literally represent the company’s future,” Cybart said.

Apple Store in China image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years