Despite a tough year for critical subsystem suppliers, their overall expenditure on research and development has remained at near record levels – evidence that critical subsystems are indeed critical to the semiconductor manufacturing equipment industry and that high research and development (R&D) spending on these products is essential.
In 2019, R&D investment is expected to reach $770 million, down slightly from the $778 million spent in 2018. Long-term historical growth for R&D spend trended in the region of 2% year over year. By contrast, it has shown signs of growing at a rate closer to 4% in recent years.
This higher rate of R&D expenditure growth, at least for now, is not a problem as industry revenues are growing at a faster rate. In fact, R&D investment in critical subsystems as a percentage of total revenues has declined over time and is currently settling in the 7.5% to 8% range.
From 2000 to 2010, R&D expenditure averaged around 10% of total revenues. The steady fall since then has been due to industry consolidation. Scale really matters when it comes to R&D spending, and it is clear from the analysis of individual companies that larger companies spend less as a percentage of total revenues than smaller companies in the same markets. Interestingly, companies with smaller R&D budgets can still hold their own in this environment. With larger companies focusing on big projects, plenty of opportunities remain for small suppliers.
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John West is managing director at VLSI Research Europe.