Semiconductor R&D spending growth to show 8% rise in 2008, IC Insights forecasts

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

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 7/10/2008

Semiconductor R&D spending will rise 8% for the year to reach $49.2 billion, despite Q1 registering a 12% rise in expenditures, according to market researchers at Scottsdale, Ariz-based IC Insights Inc.

Based on a fresh data analysis, the company has observed that R&D spending as a percent of semiconductor market sales was 17.5% in Q1 compared to 16.4% in Q1 2007.

In 2007, integrated device manufacturers (IDM), fabless semiconductor companies, and pure-play wafer foundries spent a total of $45.7 billion on R&D and related engineering activities for new IC products, with industry-wide R&D expenditures growing 8% in 2007 from $42.5 billion in 2006.

As a percent of semiconductor sales, R&D and engineering expenditures rose to 17.9% in 2007 from 17.2% in 2006, compared to R&D expenditures as a percent of semiconductor revenues which averaged 14.9% between 1990 and 2007, IC Insights noted.

Further, the company pointed out that as next-generation IC processes have become more expensive to develop and IC design costs are exploding, R&D and engineering budgets have increased at a faster rate than the industry’s sales growth since the early 1990s. As such, R&D and engineering expenditures increased at a compound average growth rate (CAGR) of 12.7% between 1990 and 2007, while semiconductor sales grew at a CAGR of 9.9% in the 17-year period. 

IC Insights said it expects this trend to continue into the next decade, even though R&D expenditures this year are forecast to rise by just 8% to $49.2 billion due to some IC makers attempting 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 as can be seen in the below chart.

Also, in Q1, IDMs collectively spent 17.9% of revenues on R&D and related engineering activities, while fabless semiconductor suppliers averaged 25.1% of sales on R&D and engineering costs, according to IC Insights’ analysis.

Meanwhile, pure-play silicon foundries spent only 7.1% of total sales on R&D and engineering expenditures in Q1, the company added.

Last month, IC Insights reflected on the first half of the year, in which it found the IC industry still reeling from an eventful and turbulent first six months highlighted by joint ventures, reduced capex spending, high wafer fab utilization rate, a 450-mm wafer venture, and the rising price of oil.