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Are IBM’s Research and Development Investments Paying Off?

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Research and development expenditure trends

To stay competitive and gain market share, IBM (IBM) has continued to incur R&D (research and development) expenses. In the last five quarters, the tech giant has spent an average of 7% of its total revenue on R&D per quarter.

The graph above shows IBM’s R&D expenses over the last five years. During the period, its R&D expenses have grown 0.3% compounded annually, and the company has spent ~$27.8 billion on R&D and maintained a $5.6 billion run rate. In comparison, Microsoft (MSFT) has invested ~$58.8 billion in R&D at an average of $11.8 billion per year, more than doubling IBM’s expenditure.

In fiscal Q2 2018, IBM’s R&D expenses fell YoY to $1.36 billion from $1.43 billion, and in fiscal H2 2018, its R&D expenses fell YoY to $2.8 billion from $2.9 billion.

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Contribution to business

IBM has 12 labs in six continents. On August 6, the company launched X-Force Red Labs, a network of four secure facilities for testing device and system security. The company’s investments have helped launch innovative products such as blockchain technology to track orders and make payments, Watson AI to offer insights into clients’ data, and IBM Z mainframes and z14 microprocessors to deliver fast data analysis and flash storage.

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