Victor, I am puzzled by your statement It is not a considered policy to have that high a percentage. If what you mean is that it is not their plan to have that high of a percentage indefinitely, then I would have to agree. If you are saying that no thinking has been done about what the size of the R&D budget should be, then I would definitely disagree. And that brings us back to the point I expressed in my initial post, which was that R&D is higher than normal, so I presumed that they intended to grow into it. My expectation is that R&D will continue to grow in real terms, but that it will decline in percentage terms as sales increase. I didn't realize that this observation would turn out to be so controversial. LOL
So, in summary, my point is that I believe that the company has a plan. I believe that they set the R&D at a level they believe is necessary for what they think they need to accomplish. I believe that they expect sales to rise to a level which will support that R&D budget.
Let me say as a side note that I believe that a company spending a healthy amount for R&D will be better able to continue to grow explosively than one that is barely spending 13%. The latter company may be in a hot area, but without a steady flow of new products, how can sales keep rocketing upwards? As a specific example, compare IWOV, which is growing at an impressive 700% a year and has a market cap of $3 billion. Their R&D was $3.2 million last quarter, up significantly from the $1.2 million in the December quarter. As a percentage of sales R&D is a mere 13%. On the other hand marketing expense was $14 million, or 59%. I have no doubt that they are doing a good job of selling their product, but will they starve for products before the newly increased R&D starts broadening and improving the product line? Time will tell....
Carl |
