Semiconductor R&D spending rises 7% in 2012, says IC Insights

Press release; Jessie Shen, DIGITIMES [Thursday 7 February 2013]

Spending on R&D by chip companies grew 7% in 2012 to a record-high US$53 billion even though the semiconductor market declined 1% to US$317.6 billion, according to IC Insights.

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, IC Insights said. 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, IC Insights indicated.

However, not all companies have seen a growing portion of sales consumed by R&D, IC Insights pointed out. 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 business in which it mainly participates, IC Insights suggested. Samsung's semiconductor capital expenditures have grown by an average of 19% annually since 2001, while its R&D spending has increased at about 5%. 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 business is also capital-intensive, IC Insights observed. Its spending on new fabs and equipment in each of the past two years was about US$11 billion, which was only about US$1 billion shy of what Samsung spent in each of those years.

Spending large amounts of money on R&D is also part of Intel's business model, IC Insights noted. Intel's US$10.1 billion in semiconductor R&D spending in 2012 was more than 7x the amount spent by second-place Qualcomm. In fact, Intel spent more than one-third of the combined US$28.7 billion spent by the top-10 R&D spenders in 2012, IC Insights said.

As the process technology needed for each new generation of ICs has become increasingly difficult to develop, fabless companies and the growing number of fab-lite companies have come to rely on TSMC not only for fabricating their wafers, but also for helping to bring their IC designs into existence. As a result, TSMC's R&D spending-to-sales ratio has been gradually climbing over the past 6-8 years, IC Insights said.

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, IC Insights indicated. 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%. And over the same time period, TSMC's sales grew an average rate of 19% per year, IC Insights added.