USA: Worldwide spending on semiconductor R&D grew 12 percent in the first quarter of 2008 to $11.1 billion compared to $10 billion in R&D expenditures during 1Q07, according to a new analysis of data from IC Insights' Strategic Reviews Online database of integrated circuit suppliers.

R&D spending as a percent of semiconductor market sales stood at 17.5 percent in 1Q08 compared to 16.4 percent in the same quarter last year.

In 2007, integrated device manufacturers (IDMs), fabless semiconductor companies, and pure-play wafer foundries spent a total of $45.7 billion on R&D and related engineering activities for new IC products, according to data complied by IC Insights.

Industry-wide R&D expenditures grew 8 percent in 2007 from $42.5 billion in 2006. R&D and engineering expenditures as a percent of semiconductor sales rose to 17.9 percent in 2007 from 17.2 percent in 2006. In contrast, R&D expenditures as a percent of semiconductor revenues averaged 14.9 percent between 1990 and 2007.

With next-generation IC processes becoming more expensive to develop and IC design costs exploding, R&D and engineering budgets have increased at a faster rate than the industry's sales growth since the early 1990s.

R&D and engineering expenditures increased at a CAGR of 12.7 percent between 1990 and 2007, while semiconductor sales grew at a CAGR of 9.9 percent in the 17-year period.

Overall, IC Insights expects this trend to continue into the next decade, but R&D expenditures in 2008 are forecast to rise by just 8 percent to $49.2 billion as some IC makers attempt to curb spending and transfer some development activities to third-party foundries. Historically, pure-play foundries have invested far less of their sales in R&D as can be seen in figure.

In 1Q08, IDMs collectively spent 17.9 percent of revenues on R&D and related engineering activities, while fabless semiconductor suppliers averaged 25.1 percent of sales on R&D and engineering costs in the first quarter of 2008, according to IC Insights' analysis.

Meanwhile, pure-play silicon foundries spent only 7.1 percent of total sales on R&D and engineering expenditures in 1Q08, based on data from the Strategic Reviews Online database.