Semi R&D at record levels despite flat market
Spending on semiconductor R&D last year hit record levels – both in absolute terms and as a % of sales – despite a flat market, reports IC Insights.
In 2012 semiconductor R&D spending rose 7% while Intel’s spending on R&D climbed to 20% of sales in 2012; Samsung’s held steady at 8%.
2012 spending on R&D by semiconductor companies reached a record $53bn, even though the market declined 1% to $317.6bn.
The increase lifted R&D spending by chip companies to 16.7% of total semiconductor sales in 2012, the highest level since the peak of 17.5% was reached in both 2008 and 2009.
For more than three decades, R&D spending as a percentage of total semiconductor sales has trended higher due to increasing costs associated with developing complex IC designs and creating next-generation process technologies to manufacture these circuits.
In the late 1970s and early 1980s, R&D spending as a percent of semiconductor sales by chip companies was typically 7-8%. R&D-to-sales ratios grew to 10-12% of revenues by the early 1990s and then jumped to over 15% during the last decade, reaching a record 17.5% in 2008.
However, not all companies have seen a growing portion of sales consumed by R&D. For example, Samsung’s R&D-to-sales ratio fell from a peak of 25% in 2001 to 8% in 2010 and has remained there since.
Samsung’s semiconductor business is more capital-intensive than it is R&D-intensive because of the commodity nature of the DRAM and flash memory businesses in which it mainly participates.
As a result, since 2001, Samsung’s semiconductor sales have grown an average of 16% per year, while its R&D spending has increased at about one-third the rate (5%) and it’s capital expenditures have grown by an average of 19% annually.
The main focus of Samsung’s investments is in adding new fab capacity for large-diameter wafers (currently 300mm but heading toward 450mm later this decade).
Intel’s spending on new fabs and equipment in each of the past two years was about $11bn, which was only about $1bn shy of what Samsung spent in each of those years.
The short life of Intel’s microprocessors means that the Intel business model demands large R&D spending.
Intel’s $10.1bn in semiconductor R&D spending in 2012 was more than 7x the amount spent by Qualcomm.
Intel spent more than one-third of the combined $28.7bn spent by the Top 10 R&D spenders in 2012.
TSMC’s R&D spending-to-sales ratio has been gradually climbing over the past 6-8 years. TSMC’s spending ratio reached 8% in 2001, but that had a lot to do with the fact that its sales were hit hard by the industry recession that year.
Aside from a small dip in 2009, TSMC’s spending on R&D has grown every year since 1998 and at an average annual rate of 25%.
Over that same 1998-2012 time period TSMC’s sales grew an average rate of 19% per year.