Apple is spending $30 billion a year on R&D to find its next big thing

On Monday, the tech world will turn its attention to Cupertino, California for the annual gadget show and tell from the world’s largest company. This year’s event, which kicks off at 1 p.m. ET, has been dubbed “It’s Glowtime,” and the latest iPhone will be the headline act.

For those who haven’t been counting, we're now onto the iPhone 16 — which is expected to be the first to include “Apple Intelligence.” The list of supporting characters in the show will include new AirPods, a range of new watches, a new iOS, and more. But, like so many Apple events before, it's really all about the phone.

If the prospect of a slightly better iPhone, with a slightly better camera, that is slightly more expensive than you want it to be doesn’t have you jumping up with excitement, rest assured you’re not alone. Consumers are holding onto their phones longer: in 2015 just 6% of iOS users reported having their phone for 3+ years, a figure that had soared to 31% this year, per data from CIRP. And with every passing year, hype for the latest iPhone seems to diminish. 

Apple is hoping that its new suite of AI software, which it's calling “Apple Intelligence” will be a crowd-pleaser in a year that has gone mad for AI. Apple Intelligence will only be available on newer iPhones, so Apple is betting the addition of AI will force some upgrades. And, after the disappointing release of Apple’s latest bold vision for the future of technology earlier this year — the Vision Pro, sales of which have reportedly fallen off a cliff per Gizmodo — Apple could really use a win for its flagship product.

But just how important is the iPhone to Apple?

From a financial perspective, despite the company’s success in diversifying into other revenue streams, the smartphone is still the mass that holds the Apple universe together. Last year, it accounted for 52% of the company’s $383 billion in sales.

Technically, that share has come down over the years: back in 2015, the iPhone was even more critical to the brand, accounting for nearly 70% of revenue. However, it’s difficult to imagine the rest of the Apple ecosystem flourishing without it. How many people buy an Apple Watch that don’t actually have an iPhone? Or AirPods? They certainly wouldn’t be getting much use out of the App Store without one. There are exceptions of course, but for the most part the iPhone remains the gateway to many of Apple’s products. And once you’re living your life within what’s known as Apple’s “Walled Garden” of products and systems, it can get pretty hard to leave, per Rani Molla.

The next, next big thing

For a long time the iPhone-maker relied heavily on its suppliers, its clever “Designed by Apple in California” phrasing skirting the fact that much of the actual hardware was made in countries like China, India, Taiwan, and Vietnam.

Apple execs are, of course, acutely aware of its dependence on both the iPhone and its suppliers. Indeed, in recent years the company has made a number of significant investments in its own tech. It now makes its own chips, ending a decades-long reliance on third-parties like Intel, and it’s spending more on Research & Development — some $30 billion last year. Interestingly, that’s not just more in absolute dollars, but also as a proportion of its revenue, reversing a roughly 10-year spell when the company cut its R&D budget in relative terms.

All told, Apple has spent $113 billion on R&D in just the last 5 years. What do you get for that kind of bill? A now-scrapped car project, some fairly routine upgrades of your product suite, a $3,500 VR headset, and potentially some home robotics no one asked for. Perhaps whatever Apple announces on Monday will make it all worthwhile.

Interestingly, despite the uptick, Apple still spent more than double its R&D budget on share buybacks last year, some $77 billion — a fact that the Department of Justice cites as an example of Apple’s anti-competitive conduct in The United States of America vs. Apple, Inc.