Businessweek on IEEE Spectrum R&D Article

[David Farber <dave () farber net>]

http://www.businessweek.com/bwdaily/dnflash/nov2004/ 
nf2004111_6327_db016.htm

NOVEMBER 1, 2004

NEWS ANALYSIS
By Steve Rosenbush


 One Small Step for R&D Spending

 Corporate America, led by Microsoft, still dominates. But with Europe  
and
 Asia boosting their budgets, is the U.S. putting in enough dollars?


Despite an iffy economy, multinational corporations slightly increased
their spending on research and development last year -- a crucial growth
factor for the global economy. A new survey by IEEE Spectrum magazine  
shows
that R&D outlays at the 100 top companies rose 2.2%, to $236 billion, in
2003, the latest year for which data are available, BusinessWeek Online  
has
learned. The IEEE Spectrum report will be released Nov. 1.

Microsoft (MSFT ) emerged as the global leader in R&D spending,  
according
to IEEE Spectrum, which is published by the trade group Institute of
Electrical & Electronics Engineers. The software giant spent an
unprecedented $7.79 billion, a 17% increase over 2002.

NUMBERS GAME.  However, much of the gain reflects a change in accounting
rules. Anticipating a new regulation that will require U.S.-listed
companies to include stock options and stock grants in their R&D  
budgets,
Microsoft adopted the new policy ahead of schedule. Most companies are
waiting to implement the new rules when they go into effect in June,  
2005.
Meanwhile, Microsoft's early adherence to the policy will exaggerate its
spending on software R&D, which still is huge by any measure.

The top 10 R&D spenders include four auto companies -- No. 2, Ford (F );
No. 4, DaimlerChrysler (DCX ); No. 5, Toyota (TM ); and No. 7, General
Motors (GM ). Also in the top 10 are a couple of drug companies -- No.  
3,
Pfizer (PFE ) and No. 10, GlaxoSmithKline (GSK ). Three of the top 10  
are
focused in industry and technology -- No. 6, Siemens (SI ); No. 8,
Matsushita Electric Industrial (MC ); and No. 9, IBM (IBM ).

Some former big spenders have fallen in the rankings. Telecom-equipment
giant Lucent Technologies (LU ), which operates the Bell Labs' research
house, dropped to 57th place this year, down from No. 36 spot in 2002.  
For
many years, Bell Labs was famous for its pure scientific research, some  
of
which led to major inventions such as the transistor. These days, it has
fewer research dollars to invest because of troubles in the telecom  
market.


BASIC RETREAT?  Xerox (XRX ) slipped to No. 85, from 80. Its Palo Alto
Research Center conducts basic research that led to computer  
breakthroughs
such as the mouse, Ethernet, and the graphical user interface. Even IBM,
which still conducts a lot of basic research, slipped two places this  
year
from No. 7 previously.

Some problems are also simmering just below the surface. R&D spending is
rising considerably faster than company sales, which increased by a  
paltry
0.8%. But some of the spending increase reflects the change in  
Microsoft's
accounting policy. And worries are deepening that an insufficient  
amount is
being spent on basic research and pure science, which often leads to  
major
breakthroughs that power economic growth.

"More and more money is going into applied research. Companies just  
can't
afford to do as much basic research anymore," says co-author Harry
Goldstein, a senior associate editor at the IEEE.

GLOBAL AWAKENING.  Universities have picked up some of the slack. But  
even
academia is more commercially oriented than in the past, Goldstein  
says, a
trend that got a big boost from the 1980 Bayh-Dole Act, which allowed
schools to patent and license their research.

American corporations and educational institutions still account for the
vast majority of global research. But other regions, such as India,  
China,
and the European Union, are growing in importance. And that likely means
they'll become increasingly competitive in drugs, high tech, and other
industries where the U.S. is currently strongest.

Yes, the research dollars are rolling along. But judging from the new  
IEEE
study, a fair percentage of them might not be rolling into the right  
place.



Rosenbush is a senior writer at BusinessWeek Online
Edited by Thane Peterson

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