IC R&D spending to grow by 10 percent in 2012, says report

According to the Mid-Year Update of IC Insights' 2012 McClean Report, spending on research and development by semiconductor companies worldwide is expected to grow 10 percent in 2012 to a record-high $53.4 billion compared to the current peak of $48.7 billion set in 2011. The increase will boost R&D spending by chip companies to 16.2 percent of total semiconductor sales in 2012, which are now forecast to rise three percent to $329.8 billion from revenues of $321.4 billion in 2011.

A dozen semiconductor companies spent more than $1.0 billion each on R&D in 2011 for the first time ever, based on the Mid-Year Update's analysis of data taken from IC Insights' Strategic Reviews online database of IC suppliers.

Intel's R&D expenditures accounted for 32 percent of the top-10 spending and about 17 percent of total R&D expenses at all semiconductor companies worldwide—counting integrated device manufacturers (IDMs), fabless suppliers, and foundries. Intel's 27 percent increase in R&D expenditures was the largest among companies spending $1 billion or more on research and development last year. Fifth-ranked Qualcomm, the industry's largest fabless semiconductor supplier, increased its R&D spending by 25 percent in 2011, while silicon foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC) raised its amount 23 percent.

For more than three decades, R&D spending as a percentage of total semiconductor sales has zigzagged higher due to increasing costs in developing more complex IC designs and the creation of next-generation process technologies for large-diameter wafers (currently 300mm but heading toward 450mm later this decade). R&D spending as a percent of semiconductor sales by chip companies was typically 7-8 percent in the late 1970s and early 1980s. R&D-to-sales ratios grew to 10-12 percent of revenues by the early 1990s and then jumped to over 15 percent during the last decade, reaching a record 17.5 percent in 2008.

IC Insights' Mid-Year Update has shown that U.S. companies accounted for 57 percent of worldwide semiconductor R&D spending in 2011, followed by suppliers based in Japan, 17 percent; Europe, 10 percent; Taiwan, eight percent; South Korea, seven percent; and mainland China, one percent.

The analysis of expenditures from IC Insights'锟?Strategic Reviews锟給nline database shows IDMs accounting for about 66 percent of R&D spending by semiconductor companies in 2011, while fabless suppliers represented 29 percent, and pure-play foundries made up the remaining five percent of the total.

It is worth noting that the world's largest IC foundry—TSMC—entered the top-10 R&D ranking in 2010 for the first time ever. In 2011, TSMC increased R&D spending by 23 percent, nearly double the 12 percent average growth recorded by the top 10 last year. With the influx of IDMs turning to foundry capacity and major fabless customers needing lead-edge CMOS processes, TSMC is spending more money on both new 300mm fabs and R&D. In July 2012, TSMC chief executive Morris Chang noted that his company's 2012 R&D budget is now double the amount spent in 2009 (which was $656 million), in addition to raising capital expenditures 13percent to an all-time high of $8.25 billion compared to $7.33 billion in 2011. TSMC's R&D–to-sales ratio stood slightly above 8 percent in 1H12 versus 7.9 percent in 2011, 5.1 percent in 2005 and 3.1 percent in 2000.