Apple plunges to No. 79 on Forbes innovative companies ranking

Apple’s innovation problems were highlighted today when Forbes published its 2013 list of the world’s most innovative companies and ranked Apple at No. 79.

Apple’s plummet has been dramatic. In 2011, the first year Forbes issued its Most Innovative Companies list, which ranks 100 firms, Apple earned the No. 5 spot. Last year, the Cupertino, Calif. company dropped 21 positions to No. 26. But the 53-place plunge in 2013 was the biggest decline yet.

Forbes uses a complex algorithm to rank companies by what it calls an “innovation premium,” which is the difference between market capitalization and a net present value of cash flows from existing businesses. The innovation premium also takes into account anticipated growth from the existing businesses within a company.

“Think of [the innovation premium] as the investor expectations built into the stock price,” explained Bruce Upbin, managing editor of Forbes, in an interview today. “Apple’s ranking dropped because of what happened to the stock [price] in the last year. Its ranking is a proxy of what investors think of the future of the company.”

Some companies are excluded from the list, including those in the mining and energy industries — Forbes said their market values are tied to commodity prices rather than innovation metrics — banks, which spend very little on research and development, and firms that have fewer than seven years of public financial data.

Facebook, for instance, would have made this year’s top 10 if just 2012’s financial data was used, but it was eliminated because it didn’t meet the seven-year minimum.

At the top of the 2013 list was Salesforce.com, which has held the No. 1 spot for three years running. VMware was No. 3, Chinese search firm Baidu was No. 6, and Amazon.com was No. 7.

Apple rival Google was No. 47 this year, a fall from 2012’s No. 24. In 2011, Google had the No. 7 spot.

“It’s not necessarily true that Google’s innovation has slowed down,” said Upbin, “but maybe investors think that driver-less cars won’t pay off like search has.”

Apple has collected criticism for nearly a year — since its stock price peaked in September 2012 at just over $702 — for what some have called a lack of innovation. That, say analysts, was triggered by the lack of a new product to follow 2007’s iPhone and 2010’s iPad, both which generate billions in revenue each quarter.

“Apple’s already done so much,” said Upbin. “What could they do that would top the iPhone and iPad?”

But because investors — and customers — are always eager for something new, something so dynamic that it kick starts an entire industry, Apple’s increasingly seen as stuck in the very profitable rut it made for itself.

Some major technology companies have never been on the Forbes list, including Microsoft and Intel, both of which spend a huge amount of money on research and development and have thousands of top engineers working on products, said Upbin.

Forbes has published a lengthy explanation of its innovation ranking methodology and a supporting FAQ on its website.