Chip Makers Continue R&D Spending Streak

Following record-high investments in 2021, chip companies are set to raise their R&D spending 9 percent this year to reach a level of $80.5 billion, according to IC Insights. A record-high $71.4 billion was spent in 2021, up 13 percent from the prior year.

Semiconductor companies are also shelling out multi-billions of dollars for fabs. Intel alone plans to spend up to $100 billion on factories in the U.S. and another $100 billion in Europe. Both regions are incentivizing manufacturing and development in the semiconductor supply chain as an unprecedented chip shortage continues.

When the world was hit by Covid-19 in 2020, wary semiconductor suppliers kept a lid on R&D spending despite market growth of 11 percent that year, the research firm said. Semiconductor R&D spending as a percentage of worldwide industry sales slipped to a ratio of 13.1 percent in 2021 compared with 14.5 percent in 2020 and 15.1 percent in 2019, when R&D expenditures declined 1 percent and total chip market revenue fell 12 percent.

Total R&D spending by semiconductor companies is expected to rise by a compound annual growth rate (CAGR) of 5.5 percent between 2022 and 2026 to $108.6 billion.

IC Insights noted total semiconductor R&D spending has declined in only four years since the 1980s: -1 percent in 2019 during an economic slowdown; -10 percent in 2009 after the industry was hit by a major global recession following the financial-market meltdown; and back-to-back drops of -10 percent in 2001 and -1 percent in 2002 when an economic downturn coincided with the end of the bubble.

In the aftermath of the 2008-2009 global recession, semiconductor R&D spending recovered strongly for a few years, but then outlays slowed during the rest of the last decade for a variety of reasons, including ongoing economic uncertainty and an historic wave of acquisitions in the chip industry.

Since the year 2000, IC Insights reports, total semiconductor R&D spending as a percent of worldwide sales has exceeded the four-decade historical average of 14.5 percent in all but five years (2000, 2010, 2017, 2018, and 2020). In these five years, lower R&D-to-sales ratios had more to do with the strength of total revenue growth than weakness in research and development spending by semiconductor suppliers.

Intel topped all other chip makers in R&D expenditures in 2021, accounting for about 19 percent of the industry’s total. Intel increased its R&D spending by 12 percent in 2021 to an all-time high of $15.2 billion as part of its efforts to retake the lead in launching new IC processing technology generations and to position itself as a major provider of advanced wafer foundry services. In 2020, Intel’s R&D spending grew just 1 percent after dropping 1 percent in 2019.

Samsung placed second in IC Insights’ 2021 R&D ranking with expenditures that grew 13 percent to an estimated $6.5 billion following a 23 percent increase in 2020. The South Korean memory giant has accelerated its R&D spending on leading-edge logic processes (of 5nm and below) to increase competition with foundry market leader Taiwan Semiconductor Manufacturing Co., which raised its expenditures on research and development by 20 percent in 2021 to about $4.5 billion following a 26 percent hike in 2020.

IC Insights’ 2021 R&D ranking shows 21 semiconductor suppliers spent $1 billion or more on R&D versus 19 companies in 2020. The top 10 in the R&D ranking collectively increased spending by 18 percent to $52.6 billion, which was about 65 percent of the industry’s R&D total last year. The top 10’s R&D/sales ratio was 13.5 percent in 2021 compared to 14.5 percent in 2020.