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To: Reginald Middleton who wrote (62)	2/2/1999 5:07:00 PM
From: Joe E.	Respond to of 419

"R&D and marketing benefits are expected to be annually occuring for X years (or else why would anybody spend the money:-). " R+D is an investment generally. Take GM (please). They spend money to develop an electric car. This is R+D. The electric car works great (well, actually theirs doesn't - let's say they spend money to develop a heated cupholder). It works great. They use that design or small variations on it for the next few years until they decide to work on it some more. They made the investment year 0 and got the benefits in years 1 through 5. Just as you said, an expenditure to generate benefits in later periods. Now, will they need to do more R+D in the future - yep, just like they need to make more capital expenditures in the future. With GM growing over the auto cycle at 5% or so, it seems like a recurring expense. Suppose (partially because of a good design) they were growing at 100% or so. Then the R+D per dollar of revenue or per dollar of gross margin would be expected to drop. Ditto marketing expenditures. If Amazon is spending $1 per year per person advertising and that amounts to 7cents per dollar of revenue this year, next year it might amount to just 4 cents per dollar of revenue. So, what I am saying is that they have leverage in these expenditures to increase their gross margins, just as if they were capex. Not true once they reach a steady state like GM. Then it is just another recurring capital expenditure to stay in biz.