Will Semi Industry Consolidation Hurt Innovation, R&D Spending?

Walden Rhines, Chairman & CEO, Mentor Graphics
EETimes (7/28/2016 01:00 PM EDT)

Has the semiconductor industry finally reached the level of maturity that requires reduction in R&D spending to continue growing earnings as revenue growth slows? Maybe it does.

In almost all years of semiconductor industry's history, research and development spending of the public semiconductor companies has increased. Only three years in the last 25 showed a decrease in spending and only two of those decreases were material (near 10%), 2001 and 2009. Keeping up with Moore’s Law is expensive, so semiconductor R&D tends to grow at the same rate as semiconductor revenue growth, unlike industries that reduce R&D spending as a percentage of revenue as they mature. Yet will this trend continue?

Certainly that’s one of the big questions prompted by all the semiconductor mergers and acquisitions activity during the past five years, particularly since all M&A announcements come with projections of “synergies” that are expected to be achieved through operating expense reductions (Figure 1).

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