The iPod Lesson – What Companies Can Learn about R&D Investing during Lean Times

Although US companies are cutting jobs, wages and benefits, many are heeding the lessons of Apple and continuing to invest in research and development even during times of economic downturns.  Following the bursting of the dot-com bubble, Apple increased its R&D spending by 42 percent between 1999 and 2002 – even as their revenue fell more than six percent during this same period.  Those investments paid off in the form of the iPod, introduced in October 2001, during the last recession, and the iTunes music store, which debuted in 2003.  This example sends a message loud and clear to companies as they face current economic hurdles. 

According to the Wall Street Journal, big R&D spenders say they’ve learned from past experience that they must invest during tough times if they hope to emerge post-recession in a competitive position. The WSJ sampled 28 of the largest U.S. R&D spenders, excluding automakers and drug companies, and found that during 4Q 2008, amidst sharply falling revenues, these companies spent nearly as much on R&D in the quarter as they did the previous year.  Overall R&D spending was down just 0.7 percent for the quarter.  Among those leading the pack in R&D spending is Intel, 3M and Microsoft, which spent 21 percent more in 4Q 2008 as compared to 4Q 2007.

Corning, Inc. is another good example of a company betting its future on the outcomes of research and development.  As the economy worsened last year, Corning executives devised a “rings of defense” strategy for helping it survive the downturn.  R&D represented the innermost ring of this strategy, signifying that it would be among the last items to be cut.  As the economy worsened, Corning froze hiring, temporarily shut factories, eliminated 3500 jobs, cut marketing and administration spending by 30 percent but held steady on its R&D budget of $627 million.  The company is focused on improving current products as opposed to developing new ones.  This includes advancing Corning’s Gorilla Glass technology, a scratch-resistant surface for smartphone screens and the development of better glass solutions for solar energy systems.

To read more about how other companies are handling R&D investments during the recession, read the story in the WSJ: 

http://online.wsj.com/article/SB123819035034460761.html