Two recent reports quantify the effect of the worldwide recession on corporate R&D spending. Both the European Union and Booz & Company found that R&D spending by the world’s largest publicly held R&D companies declined last year for the first time in many years. However, as both reports noted, R&D spending fell less than revenues or capital spending did in 2009. In addition, the decline in R&D was primarily the result of contraction in certain industries, most prominently, the automobile industry.

The EU’s 2010 R&D Scoreboard tracks fiscal 2009 R&D spending by the top 1,000 R&D EU companies and top 400 R&D non-EU companies. Companies must have invested more than €28 billion ($39 billion = €0.72 = $1) in R&D in fiscal 2009 (or the latest fiscal year for which information was available corresponding to 2009) to be included in the Scoreboard.

For the 1,400 companies, fiscal 2009 R&D spending declined 1.9% to €402,220 million ($558,539 million), compared with 6.9% growth in fiscal 2008, marking the first decline in four years. Thus, the three-year compound annual growth rate (CAGR) for R&D expenditures by Scoreboard companies was 4.8%.

In total, revenues for the 1,400 companies fell 10.1% in fiscal 2009, but the three-year CAGR for sales was 2.0%. Operating profits declined 21.0% for the companies. Capital expenditures declined 7.8% in fiscal 2009 and, as a percentage of sales, were 7.3%. The three-year CAGR for Scoreboard companies’ capital expenditures declined 7.8%.

R&D investment by Scoreboard companies was disproportionately represented by the leading spenders. The top 100 companies represented 58% of the 1,400 companies’ fiscal 2009 R&D expenditures. The top 50 represented 43%, and the top 10 accounted for 14%. Among the top 100 companies, 54 companies decreased R&D spending last fiscal year and 69 posted lower sales.

The Scoreboard’s findings for select industries are presented in the table below. The pharmaceutical industry was once again the largest total annual spender. It was also one of only four industries in the table whose level of R&D investment increased last year. Likewise, revenues for only three of the industries in the table increased in fiscal 2009: alternative energy (8.5%), biotechnology (9.3%) and pharmaceuticals (6.2%). Capital expenditures declined for all but two industries in the table: oil and gas producers (10.5%) and biotech (6.9%) (see graph, page 7).

On a regional basis, EU companies in the Scoreboard reduced their R&D investments by 2.6% last fiscal year, consistent with their 10.2% decline in sales and a 13.0% drop in operating profits. Capital expenditures fell 12.1%. Germany (104 companies), the UK (72) and France (61) were the EU members with the largest number of companies in the Scoreboard. Combined, the three countries’ firms represented more than two-thirds of EU companies’ R&D investments.

There were 504 US companies in the 2010 Scoreboard, down from 531 last year, which accounted for 36% of all Scoreboard companies. R&D investments by these companies declined 5.1% in fiscal 2009. Net sales for US companies fell 13.3% and operating profits were down 1.4%. Capital expenditures by US firms were also down, falling 22.0%.

Among Asian countries, Japan continued to dominate the Scoreboard with 259 companies. Although these firms’ sales declined 10.0% and operating profits plummeted 88.2% last fiscal year, R&D spending was flat. Capital spending among Japanese companies in the Scoreboard declined 5.1%.

Outside Japan, other Asian nations showed strong R&D growth. R&D investment by the 45 Taiwanese firms in the Scoreboard increased 3.1% to €5,433 million ($7,546 million), while R&D expenditures by the 26 South Korean firms grew 9.1% to €10,294 million ($14,297 million). Only 21 Chinese firms were represented in the Scoreboard, up from 15 last year, but these companies’ R&D spending increased 40.0% in fiscal 2009 to €5,371 million ($7,459 million) . R&D investments by the 17 Indian companies in the Scoreboard rose 27.3% to €1,367 million ($1,899 million).

This month, Booz & Company released its sixth annual R&D survey. Results are based on the financial results as of June 30 for one thousand of the world’s most innovative companies latest financials. For the companies examined, R&D spending declined 3.5% in 2009 to $503 billion. Revenues fell 11% to $13.4 trillion. As a result, R&D intensity improved from 3.5% to 3.8%, indicating that companies continued to invest in R&D despite revenue declines. Capital expenditures fell 17.5%. According to the survey, automobile, computing and electronics, and industrial companies accounted for nearly all of the decline in R&D spending.

By region, companies with headquarters in Japan cut their R&D spending by 10.8% in 2009 to $127,409 million. North American and European companies’ R&D spending fell 3.8% and 0.2% to $201,351 million and $162,101 million, respectively. In contrast, spending by Chinese and Indian firms rose 41.8% to $5,309 million.

By industry, healthcare R&D totaled $111,164 million last year. Automobile R&D was $85,226 million. Industrials’ R&D investment totaled $52,012 million. Chemicals/energy R&D investments were $36,127 million.

Bar Graph: Changes in Fiscal 2009 Capital Expenditures Among EU Scoreboard Companies by Industry

Semiconductors -34.8%

Automobiles -21.2%

Industrial Metals -11.6%

Chemicals -11.2%

Pharmaceuticals -9.9%

Food Producers -9.3%

Alternative Energy -7.6%

Biotech 6.9%

Oil & Gas Producers 10.5%