Earnings

Analysts: Apple's innovation will pay off... eventually

Apple's 'gap' year
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Apple's 'gap' year

Despite a third straight quarter of lower year-over-year sales, Apple is looking ahead to some of its longer-term ventures as future growth drivers, Steve Milunovich of UBS said Wednesday.

The IT hardware analyst said that as technologies for things like self-driving cars and virtual reality continue to improve, he believes Apple will thrive, especially considering the tech giant's significant spending on research and development last quarter.

Milunovich said in a "Squawk Box" interview that he sees the company inching closer toward producing and distributing its own content.

"Apple's been super focused, and it appears that they believe that they want to be the ones to display the content, to manage the content," Milunovich said, noting that some investors believe that to effectively break into content, Apple should have acquired Time Warner or Netflix.

"I'm probably not so much on that side of things," he said, "but to believe that they shouldn't be [acquiring new companies], you have to believe that the innovation is coming and that there will be some major new products over time, and I think the R&D budget suggests that that's likely."

Apple's 'pay to wait' play ahead of growth: Pro
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Apple's 'pay to wait' play ahead of growth: Pro

Will Power, a senior research analyst covering wireless at Robert W. Baird & Co., echoed Milunovich's outlook about Apple's major R&D expenditures in a separate "Squawk Box" interview Wednesday.

"As you look at R&D, a lot of this R&D is being spent on products that'll be out in three, four, five years," Power said, "and so I think one of the things you're getting paid for here, in part, is the call option on what do they do on the car front, what do they do with content, what do they do with TV, which are all elements that I think they're still looking at and working on."

"I think partly because of that and further innovations with existing products you are seeing a step up in spending, and I think that's something we're OK with given the overall profile," he added.

Both analysts acknowledged that the fruits of the company's mass spending are not being seen today, but predicted a slight lift in growth for fiscal 2017, and a more substantial acceleration in growth for the next cycle — in other words, when Apple releases its next smartphone.