The release of the Vision Pro from Apple (NASDAQ: AAPL) — a spatial computing device that ventures into the realm of virtual reality (VR) — has not yielded the expected market boost. Instead, Apple finds itself entangled in regulatory scrutiny similar to its tech giants colleagues. The European Commission’s punitive $2 billion fine and ongoing investigation into other anticompetitive practices have marred the company’s financial performance.
These challenges, coupled with decelerating revenue growth, have caused Apple’s stock to lag behind market benchmarks over the past year.
Amidst this backdrop, Apple has started to curb its clandestine expenditures, particularly in an area where Meta Platforms (NASDAQ: META) has surprisingly been transparent: research and development (R&D).
Apple Takes a Cue from Meta
Leaked internal reports reveal that Apple is terminating two major R&D initiatives that have sparked excitement and speculation among Apple enthusiasts for years. Project Titan, Apple’s endeavor in self-driving electric cars, is being shelved. Additionally, the longstanding research on microLED technology, intended for products such as the Apple Watch, is also on the chopping block.
While the fate of Apple’s 5G modem project remains uncertain, recent multiyear 5G chip supply agreements with Broadcom and Qualcomm hint at a possible sunset for this project as well.
Investors observing Apple’s expenditure patterns could have anticipated these sweeping changes. After years of increasing R&D investments post the 2007 iPhone launch, the company is now transitioning towards a phase of financial prudence. R&D expenses declined in the past year, aligning with a similar trend Meta is experiencing under CEO Mark Zuckerberg’s efficiency-driven leadership.
Signs of Hope for Apple
Notwithstanding the strategic shifts, Apple’s robust return on invested capital (ROIC) in recent years, driven by its mature mobile product line, remains a beacon of hope. With an ROIC exceeding 50%, Apple’s innovation and product commercialization have yielded remarkable returns. This track record underscores the potential for Apple to redirect R&D investments from discontinued projects towards fresh avenues, potentially enhancing profitability.
While past performance doesn’t guarantee future success, Apple’s extensive global user base affords ample opportunities to introduce new products and services, possibly including an advanced AI assistant surpassing Siri.
Looking Ahead
As 2024 progresses and more details emerge regarding Apple’s cost-cutting measures, investors may pin their hopes for a stock resurgence on traditional earnings growth. Following Meta’s recent revitalization, Apple investors may anticipate a similar trajectory.
Final Thought
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*Stock Advisor returns as of April 4, 2024