Tech companies spend big on R&D

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Tech companies spend big on R&D

Clear link between R&D investment and higher sales.

Significant investments in research and development are paying off for the world's top tech companies according to a global R&D scorecard conducted by the European Commission.

The scorecard consisted of 1500 of the world’s biggest R&D spenders in 2011 and accounted for 90 percent of the total R&D expenditure by businesses worldwide.  

Most of the top 100 companies showing the largest R&D increases were in the ICT sector with companies such as Huawei (48.4 percent), LG (47.8 percent), Google (37.2 percent), Apple (36.3 percent) and STMicroelectronics (34.5 percent) notching up notable jumps in investments.

Microsoft led the way for the tech sector, coming in at the world's second largest spender on R&D by splashing out $A9.6 billion, up by 8.5 percent from the previous year.

The software giant’s massive spend on R&D can be largely attributed to the acquisition of Skype for $7.8 billion. Despite the significant investment in R&D spend; the company still maintained sales growth of 5.4 percent for the year.

As with a number of tech companies listed on the scorecard, there was a recurring theme of steady R&D investment over a period of time leading to consistent growth in sales and profits.

Microsoft for example, had a three-year (2009-2011) growth rate in R&D investments of 2.9 percent that led to the 8.1 percent growth in sales over the same period.

South Korean electronics giant, Samsung, came in at number five overall with a total R&D spend of $8.6 billion for the year - a 19 percent year-on-year growth in R&D over three years. Samsung sales figures over the same period grew at almost the same rate, with a sales growth rate of 18.8 percent.

Intel, which is attempting to compete with ARM on low power processors for the high growth mobile market, ranked 8th with an R&D spend of $8.1 billion dollars and a three-year compounded growth rate of 13.4 percent generating 12.8 percent in sales growth.

Cisco, which has acquired more than 150 companies in its 28-year history, made a strong showing with R&D investments totaling $5.3 billion dollars for the year and coming in at number 21 overall. This led to the networking giant’s 5.2 percent year-on-year sales growth.

Google leapt 200 places in the R&D investment rankings from the previous year, coming in at 26 with a total R&D spend of $5.04 billion in 2011.

The search engine giant, which also owns the market-leading mobile operating system, Android, went into acquisition mode in 2011, buying a number of smaller software companies including travel industry software specialists ITA, eBook Technologies, Restaurant Review system Zagat, PVR software company SageTV, mobile loyalty card startup Punchd Labs, DailyDeals and numerous others.

Again, the rising R&D investment between 2009-2011 led to 20.3 percent in sales growth over the same period.  

Oracle, which most notably acquired RightNow Technologies for $1.5 billion to bolster the company’s cloud service offering, ranked 31 with a spend of $4.3 billion. The enterprise giant’s steady R&D investments between 2009-2011 led to 17.8 percent growth in R&D and 16.9 percent sales growth within the same period.  

Despite not having the same financial clout as some of the other big players in the industry, hosting company Rackspace more than doubled its spend on R&D over the previous year and invested just under $100 million. Year-to-year R&D growth between 2009-2011 came to 36 percent alongside sales growth of 24.4 percent over the same period.

The R&D figures indicate tech companies felt confident to invest big during the post financial crisis period. 

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