R&D is your future, SG&A is your present
In general, robbing SG&A to invest in R&D promotes growth in a healthy technology company. Doing the opposite robs growth. SG&A growth can be a cancer that kills tech companies. R&D is the only cure as it is what brings differentiable value in the marketplace and growth to the top line. General & Administrative (G&A) can only control spending as a means to greater profitability. Sales (S) can raise the top line, but it can only sell the products you have. Only R&D with the insight of proper marketing can develop the products that the customer needs but you don’t have to sell. If you don’t develop them, your competitors certainly will, as markets abhor unmet customer needs.
A great example of this is what the team of Gary Dickerson and Bob Halliday did after they became CEO and CFO in 2013. Gary had the vision what customers needed and Bob brought the surgical precision needed to cut the cancer out of SG&A so it could be moved to R&D. Between 2012 and 2015, they cut SG&A by $193M and raised R&D by $214M, as sales increased by $940M. For every dollar they added to R&D, they returned $4.39 in additional sales. For every dollar they cut out of SG&A, they returned $4.87 in additional sales.
Now one could argue that Applied was a just another boat rising with the tide of the all equipment sales over that period. However this does not explain the fact that the overall equipment market rise was 3.1% versus Applied’s revenue rise of 10.8%. Clearly, Applied Materials has been energized. What does explain the difference is that this was a very innovative period for Applied, proving the point that robbing SG&A to invest in R&D promotes growth. In 2014, Applied’s Volta™ cobalt process chamber was introduced. In 2015, they introduced Olympia ALD™, Centris™ etch, Tetra™ Z etch, and the VeritySEM® metrology systems. Plus, the innovation continued into 2016 with the Selectra™ etch and PROVISION e-beam inspection systems.
