The R&D spending spree is not unusual, because chip makers typically spend more on research than on facility expansion in the down cycle period.
R&D spending by chip makers in 2012 made up 16.7% of total semiconductor sales, the highest level since the peak of 17.5% in both 2008 and 2009, the worst years ever for chip makers in the 2000s.
Escalations in research costs for increasingly complex IC chips and a new generation of process technology has sent the R&D spending higher, too
In the late 1970s and early 1980s, R&D spending as a percent of semiconductor sales by chip companies was typically in a range of 7 to 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, keeping pace with escalating costs in developing complex IC chips and a next generation of manufacturing process.
However, not all every companies have spent more on research than on facility investments. 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.
This tells that Samsung’s semiconductor business is more capital-intensive, because of securing scale is key to success in the commodity-like DRAM and flash memory business, its stronghold. .
Samsung's R&D spending has increased by 5% annually, while its capital expenditures have grown by an average of 19%.
Intel has spent as much on R&D as on fab expansion. Its spending on new fabs and equipment in each of the past two years was about US$11 billion.
As Intel’s advanced microprocessors and other incredibly complex logic devices have very short life cycles, spending large amounts of money on research and development is part of its business model. Intel’s US$10.1 billion in semiconductor R&D spending in 2012 was more than 7 times the amount spent by second-place Qualcomm.
It also represented one-third of the US$28.7 billion R&D spending combined by the top-10 R&D spenders in 2012, according to IC Insights.
World's largest pure-play foundry, TSMC was a big spender on research, too. 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.
With just only a small break in 2009, TSMC’s spending on R&D has grown every year since 1998 at an average annual rate of 25%. Over that same 1998-2012 time period TSMC’s sales have grew an average rate of 19% per year.