Semiconductor R&D Spending to Reach $49.2B in 2008
Expenditures rise 12% in 1Q08, but growth is expected to ease back to 8% for the year

Worldwide spending on semiconductor research and development grew 12% in the first quarter of 2008 to $11.1 billion compared to $10.0 billion in R&D expenditures during 1Q07, according to a new analysis of data from IC Insights' Strategic Reviews Online database of integrated circuit suppliers.  R&D spending as a percent of semiconductor market sales stood at 17.5% in 1Q08 compared to 16.4% in the same quarter last year.

In 2007, integrated device manufacturers (IDMs), fabless semiconductor companies, and pure-play wafer foundries spent a total of $45.7 billion 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% in 2007 from $42.5 billion in 2006.  R&D and engineering expenditures as a percent of semiconductor sales rose to 17.9% in 2007 from 17.2% in 2006.  In contrast, R&D expenditures as a percent of semiconductor revenues averaged 14.9% 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 (CAGR) of 12.7% between 1990 and 2007, while semiconductor sales grew at a CAGR of 9.9% 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% to $49.2 billion 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 as can be seen in Figure 1.

Figure 1

In 1Q08, 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 in the first quarter of 2008, according to IC Insights' analysis.  Meanwhile, pure-play silicon foundries spent only 7.1% of total sales on R&D and engineering expenditures in 1Q08, based on data from the Strategic Reviews Online database.

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