Apple is not the biggest R&D spender unlike what many people think

I have to admit, I am an admirer of Apple as a company. Strong cashflow, strong margins and the way they have created the cult effect into electronics is uncalled for. An article which I have read would probably amazed investors as well. They are not the largest spender in R&D and Microsoft, Google, Cisco and Intel outspent Apple.  Look at the article below:

Q: Is it true that Apple spends more on marketing than it spends on research and development?
Ask Matt on USA Today

A: Given Apple's reputation for being so innovative, some investors are surprised to learn that it's not in the top 10 big spenders on research and development. And you're right, Apple does spend more on overhead costs, which includes advertising, than it spends on R&D.

There's no question that Apple has entranced both consumers and investors. Its lineup of mobile devices has become mainstream and practically ubiquitous. Many people who were never tempted to dabble with technology before have bought Apple products. Meanwhile, the company has become an unrivaled corporate power. Apple has dominated the music industry and tablet computing industry, despite  Amazon.com's efforts, and has even marginalized gaming companies such as Sony and Nintendo. The company has become so powerful, it's not only the most valuable company in the world, but thanks to the premium prices it charges for its products, also a profit powerhouse.

The numbers bear this out. Companies in the Standard & Poor's 500 reported 9.4% earnings growth in the fourth quarter of 2011. Without Apple, profit growth would drop to 6.3%.

Some investors like to think Apple has invented many of the things consumers now take for granted in technology by pouring money into R&D. But that's not entirely the case.

The top 10 companies and the amount they spend on R&D (in billions) in the past 12 months were, according to S&P Capital IQ:

• Microsoft : $9.4

• Pfizer : $8.4

• Intel : $8.4

• Merck : $8.3

• Johnson & Johnson : $7.5

• International Business Machines : $6.3

• Cisco Systems : $5.6

• Google : $5.2

• Eli Lilly : $5.0

• Oracle : $4.4

Apple is 18th on the list, spending $2.6 billion, behind other technology giants such as Microsoft, Intel, IBM, Cisco, Oracle, Qualcomm, Hewlett-Packard and Amazon.com. Apple's R&D spending as a percentage of its revenue of $127.8 billion was 2%. What does Apple spend its money on? The company doesn't break out its advertising spending. But, like all public companies, it discloses how much it spends on selling, general and administrative costs, or SG&A. SG&A is essentially a company's overhead, which includes executive salaries and advertising. Apple spent $8.3 billion on SG&A in 2011, which was 6.5% of revenue.

Investors can compare Apple's spending with a competing PC maker: Hewlett-Packard. HP spent $3.2 billion in R&D the past 12 months, which is 2.6% of its $124.5 billion in revenue. Meanwhile, it spent $13.7 billion on SG&A, which is 11% of revenue. The fact that Apple is able to spend less on R&D, while still charging premium prices for its products, is a big reason for its mounting profits and pile of more than $97 billion in cash and investments.

Competition usually erodes such lofty profit margins over time. But so far, that hasn't been the case. Only time will tell if the companies spending more money on R&D are cooking up products that will be able to challenge Apple in the next few years.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies.