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Researching the State of R&D
Kirt's Cogitations™ #188

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   Cog·i·ta·tion [koj-i-tey'-shun] – noun: Concerted thought or reflection; meditation; contemplation.
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Researching the State of R&D

According to recent published reports, overall research and development spending in the U.S. and around the world by private businesses has been declining. At least in the U.S., determining exactly how much of a publicly traded company's reported R&D funds actually is applied toward real research is getting harder because of a practice being used by companies like Microsoft whereby stock options and issuances are thrown into the R&D expense column in the financial ledger. There is a chance that the Securities and Exchange Commission (SEC) will begin requiring all companies to abide by the process. Only an act of Congress will prevent it from becoming law.

A common lament from both academic and corporate researchers is the trend away from basic research and toward specific, "applied R&D," which is product-oriented research. As competition gets tougher, companies feel they cannot afford to spend money on anything other than projects that have some probability of improving the bottom line. Stockholders have influenced the decision by criticizing and even threatening companies with class action lawsuits for nonperformance when spending what is deemed too much on frivolous research.

As with fundamental product design and manufacturing, R&D is experiencing the globalization thing. Many companies are relocating or building new research laboratories offshore in order to exploit cheaper labor and lower overall costs of doing business. A lot of the R&D dollars are being diverted from U.S. and European universities and provided to schools in India, Taiwan, China, and other such familiar countries. Massive amounts of technology is being transferred by U.S. and European countries in this manner. Test and processing equipment, software, and materials accompanies the research dollars.

With all that in mind, here is an excerpt from the IEEE Spectrum's 2004 survey of the world's top R&D spenders (actually for FY2003). Topping the list this year is, Microsoft. Bill's accountants reported $7.8B in R&D spending; however, $1.3B was paid out as shares to its research employees. If not for the stock payout, MS would have been in 4th place, assuming the three companies ahead of it did not report stock issuances. The previous year, Microsoft was only in 10th place, so creative accounting can really benefit a company's image.

Ford Motors Co. came in in second place with $7.5B in R&D. The Pfizer drug company made 3rd, and DaimlerChrysler placed 4th. Coming in 5th with $6.2B is Toyota. General Motors, whose stock borders on junk status these days, made 7th place (down from 4th the previous year) at $5.7B. Sony comes in 12th at $4.9B and mobile phone giant Nokia spent $4.5B to hit 13th place, and Intel followed closely in 14th. Motorola (not including its Freescale spin-off), finished at 17th place; Freescale finished in 77th. Together, they would qualify for 11th place. Hewlett Packard, out of which came Agilent Technologies, hit 20th place with $3.7B in R&D outlays. Agilent placed 75th with $1.1B, so together they would also have qualified for 11th place.

The U.K.'s BAE (British Aerospace), with a very strong physical presence in the U.S., spent $3.0B for a 3first ranking spot. Japan's Fujitsu is in 40th place with $2.3B. General Electric dropped a little to 42nd place. Texas Instruments placed 50th with $1.7B in R&D. NTT DoCoMo, the Japanese 3G phone service company, rated 70th place with $1.1B. EMC Corporation made a precipitous drop from 84th place to 100th place, with a "mere" $718M in R&D. See the November 2004 edition of Spectrum for more company rankings, or send me an e-mail with the company in which you are interested.

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