Chip R&D 'outstripping sales' claims analyst

Worldwide spending on semiconductor research and development grew 12 per cent in the first quarter of 2008 to $11.1bn compared to $10.0bn in the same quarter last year, according analyst firm IC Insights.

R&D spend as a percentage of semiconductor market sales stood at 17.5 per cent in 1Q08 compared to 16.4 per cent in the same quarter last year.

In 2007, integrated device manufacturers (IDMs), fabless semiconductor companies, and pure-play wafer foundries spent a total of $45.7bn on R&D and related engineering activities for new IC products, according to data complied by IC Insights. Industry-wide R&D expenditures grew 8 per cent in 2007 from $42.5bn in 2006. R&D and engineering expenditures as a per cent of semiconductor sales rose to 17.9 per cent in 2007 from 17.2 per cent in 2006. In contrast, R&D expenditures as a per cent of semiconductor revenues averaged 14.9 per cent between 1990 and 2007.

With next-generation IC processes becoming more expensive to develop and IC design costs exploding, R&D and engineering budgets have increased at a faster rate than the industry’s sales growth since the early 1990s. R&D and engineering expenditures increased at a compound average growth rate of 12.7 per cent between 1990 and 2007, while semiconductor sales grew 9.9 per cent in the 17-year period.

Overall, IC Insights expects this trend to continue into the next decade, but R&D expenditures in 2008 are forecast to rise by just 8 per cent to $49.2bn as some IC makers attempt to curb spending and transfer some development activities to third-party foundries. Historically, pure-play foundries have invested far less of their sales in R&D, claimed IC Insights.

In 1Q08, IDMs collectively spent 17.9 per cent of revenues on R&D and related engineering activities, while fabless semiconductor suppliers averaged 25.1 per cent of sales on R&D and engineering costs in the first quarter of 2008, according to IC Insights’ analysis.

Meanwhile, pure-play silicon foundries spent only 7.1 per cent of total sales on R&D and engineering expenditures in 1Q08, based on data from the Strategic Reviews Online database.

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