Some U.S. tech companies are trimming research and development budgets to save money - sparking fears that the country eventually could become less competitive.
IBM on Wednesday plans to launch a consulting service to help businesses manage R&D efforts. It's needed because companies increasingly must do more with smaller budgets, IBM executive Melvin Weems says.
Tech companies traditionally are big R&D spenders. Those trading on the American, Nasdaq and New York stock exchanges spent almost $92 billion on R&D in the most recent fiscal year, says a USA TODAY analysis of data from Reuters Fundamentals. Spending grew from the previous year, but more slowly than revenue. Thus, the industry spent a smaller chunk of its budget on R&D - as it has for the past four years.
Many cuts came from some of tech's most innovative companies:
• Sun Microsystems last month announced a restructuring that includes a "significant reduction in non-core or redundant R&D," CEO Jonathan Schwartz said. The computer-maker had already trimmed its budget 7% in 2005 from 2004.
• Bell Labs, the research center behind the fax machine and other innovations, may soon face cuts. Parent company Lucent Technologies in April announced plans to merge with French rival Alcatel and cut 10% of the combined staff. Every business unit is likely to be affected, Lucent says.
• Hewlett-Packard cut its R&D budget to $3.5 billion from $3.7 billion in its 2003 fiscal year. The unit was overhauled to be more efficient and product-focused, spokesman Mike Moeller says.
• Microsoft cut its R&D budget to $6.2 billion in its 2005 fiscal year from $6.6 billion in 2003. Microsoft attributes some of the drop to an accounting change.
The government isn't stepping in to fill the void. Federal R&D grants aren't keeping pace with inflation, says Kei Koizumi, a director with the American Association for the Advancement of Science. (Grants typically go to universities, which often transfer findings to companies for commercialization.)
"It's not a good sign for the future innovation capacity of the U.S. economy," Koizumi says.
The USA spends more on R&D than other nations, but some are gaining. China is expected to increase spending by 28% from 2004 to 2006, says a study from R&D Magazine and government contractor Battelle.
It can be tough for CEOs to justify an increase. Researchers created everything from the computer mouse to the Internet, but there's no guarantee that R&D will produce something that can be sold. A 2005 Booz Allen Hamilton study of 1,000 companies found no direct correlation between R&D spending and sales growth, operating profit or shareholder return.