Software Development and Services Dominate R&D Spending According to Annual Global R&D Spending Survey By IEEE Spectrum; Microsoft is the World's Top R&D Spender

NEW YORK--Nov. 1, 2004--Software development dominates research and development (R&D) spending among the world's biggest companies and, for the first time, a software company -- Microsoft Corp. -- is the world's top R&D spender, according to the third annual global survey of the Top 100 R&D Spenders by IEEE Spectrum magazine.

Microsoft invested $7.79 billion in R&D expenditures in 2003, a 17 percent increase over 2002. The Redmond, Wash.-based company displaced Ford Motor Company from the first place slot the year before. Other top spenders were Pfizer Inc. , DaimlerChrysler AG and Toyota Motor Corp. . Rounding out the top 10 were Siemens AG , General Motors Corp. , Matsushita Electric Industrial Co., IBM and GlaxoSmithKline PLC .

The software and services sector increased the most of those studied, with an 18.6 percent gain in R&D spending, mostly because of Microsoft's spending.

"At most companies, software is taking up a bigger chunk of the development budget year after year, and it is at the heart of everything from drug discovery to automobile telematics," said Senior Associate Editor Harry Goldstein, IEEE Spectrum.

While software giant Microsoft topped the chart this year, a new accounting rule proposed by a private sector organization, the Financial Accounting Standards Board, Norwalk, Conn., which establishes U.S. accounting standards, could turn next year's list upside down. The rule, which will go into effect in June of 2005, would compel U.S. stock market-listed companies to figure stock outlays into their R&D expenses. At the moment, hardly any company besides Microsoft tracks stock or stock options as R&D expenses. The implementation of this rule would make assessing companies' R&D spending much more accurate.

In addition to the increasing concentration of R&D resources on software development, systems engineering and consulting, Mr. Goldstein interviewed the world's top research executives to determine the trends that have shaped R&D spending over the last forty years and to discuss future key trends. Most agreed that the shift of basic research from corporate ivory towers to government-funded university projects and the globalization of the industrial research enterprise will only accelerate over the next decade.

"Most companies today are relying on universities to pursue fundamental breakthroughs for them," said Mr. Goldstein. "Today, overall spending is shifting away from being government-funded to being funded by private industry; this trend has had huge consequences for the firms that depend on university researchers and for the researchers themselves.

"The globalization trend has also changed industrial R&D in two significant ways -- industrial researchers have taken on the additional burden of using the Internet to become knowledge brokers within their companies, and the pool of research talent for hire has expanded significantly across the globe. Relatively cheap labor, combined with tax breaks and other incentives, plus the promise of greater efficiencies, are also encouraging companies to move their R&D operations physically closer to their manufacturing facilities in countries like India and China."

Additionally, the report points out the following key macro trends:

-- Overall the top 100 companies upped their R&D by 2.2 percent to $236 billion, despite sluggish sales growth of 0.8 percent.

-- Bucking the trend, technology hardware companies, which account for 20 percent of the overall R&D spending, reduced expenditures by 4.9 percent in 2003, even though their sales increased by 2.3 percent.

-- The auto industry had relatively flat spending for R&D, with an increase of 3.2 percent, substantially higher than the overall average of 2.2 percent.

-- Semiconductor firms increased spending by 5.3 percent, but that was less than half their increased sales, 12.6 percent, which rebounded from a 10-percent slump the year before.

Data for the IEEE Spectrum R&D scoreboard is based on the latest company annual reports available from Standard and Poor's. The November issue of IEEE Spectrum is available by subscription, on many newsstands throughout the Northeastern United States and online at www.spectrum.ieee.org.

About IEEE Spectrum

IEEE Spectrum is published monthly by IEEE, the world's largest organization of technology professionals and business leaders. Over 385,000 executives, engineers, and computer scientists at the world's largest companies and universities look to IEEE Spectrum each month for the latest news and most accurate information about new important technology developments. IEEE Spectrum readership comprises the largest concentration of high-tech professionals and senior managers of any publication in its niche. IEEE Spectrum also communicates through its Web site, IEEE Spectrum Online (www.spectrum.ieee.org). Its content includes numerous news stories and features beyond those featured in the print magazine.

EDITOR'S NOTE: The complete Top 100 R&D Spenders chart is available for review or citation upon request.