December 2004

Special Report: R&D '04

Technology Review's annual look at corporate research trends and numbers including the R&D spending of 150 top technology companies, plus profiles of three hot research projects.

By Technology Review

Corporate spending on research and development remains the driving force behind innovation. Indeed, the five corporations with the largest R&D budgets alone spent $33.6 billion last year, more than the U.S. government spent on R&D conducted by federal agencies. But a troubling trend that began in 2001 continues: corporate R&D spending is on the decline. Last year's decrease of .6 percent is slight, but it follows sharper declines in 2001 and 2002, after more than a half-decade of robust growth. Perhaps most worrisome, the declines were not limited to a few obviously troubled sectors, such as telecommunications, but affected a cross section of industries and included some of the world's top spenders on R&D. In fact, three of the five largest corporate R&D spenders showed significant decreases in their 2003 budgets: the top spender, Ford Motor, cut its budget by $200 million, and Siemens, a long-time powerhouse in research and development, decreased spending by $900 million.

The picture, however, is far from being universally bleak. Technology Review's innovation index, which is calculated from four key measures, shows healthy -- and growing -- spending by leading pharmaceutical, biotech, and computer companies. Familiar names like Pfizer, Amgen, and Nokia lead the list. But the innovation index also contains some surprises. High on the list were BMC Software and Swiss biotech firm Serono. And Volkswagen and Nissan Motor ranked, unlike most of their competitors in the auto industry, right up with Merck and Intel.

Predictably, pharmaceutical and electronics companies feature prominently among the 150 top spenders, with some 28 pharma and medical-device companies and 19 electronics firms showing up. But the continued consolidation of research within some sectors is also notable. For example, Intel spent $4.36 billion last year, while its nearest rival in the semiconductor business had an R&D budget of only $1.72 billion. Even in the technologically competitive biopharmaceutical industry, one company, Pfizer, dominates, with a $7.13 billion budget; the second-ranked drug corporation spends nearly $2.2 billion less.

Of course, R&D budgets only partially reflect the state of innovation. In the following pages, Technology Review also profiles three corporate research projects; each tells a very different story about the challenges of commercializing radically new technologies. As you read in the profiles, business, legal, and financial factors all play key roles in determining how -- and whether -- new technologies move out of the lab. Together these profiles present a peek into the workings of today's corporate research labs. -David Rotman

• Philips: Polymers to Pixels
• Nokia: Peer-to-Peer Phones
• Texas Instruments: Single-Electron Transistors
• The Top 15: Companies Spending the Most on R&D
• The Innovation Index
• The Business of Innovation