An AMD processor
Christian Wiediger/DreamstimeAs the debate over Moore’s Law continues to rage, companies in the semiconductor industry don’t have the luxury of armchair arguments. Investors—and customers—demand a breakneck pace of innovation.
And innovation costs money. For 2020, major semiconductor companies are estimated to spend $36.4 billion on research and development, a 6% rise, even amid the Covid-19 pandemic, according to RBC Capital Markets analyst Mitch Steves. The Semiconductor Industry Association estimates the U.S. chip companies spent about 20% of their annual revenue on R&D in 2019.
Barron’s screened the companies in the PHLX Semiconductor index to see which ones spend the most on research and development as a portion of their overall revenue.
Here Are 15 Chip Companies Spending The Most on R&D
R&D is crucial to innovation among semiconductor companies.
Source: FactSet
Proportionately, Marvell Technology Group (ticker: MRVL) is the second highest R&D spender, behind Inphi (IPHI), which Marvell recently agreed to acquire for $10 billion. Marvell makes chips that help power data centers, and Inphi makes fiber-optic components that help move data around in such computing hubs.
CEO Matt Murphy says the Inphi deal is a way for Marvell to increase the number of complementary products it can sell to customers. He pointed out in a recent interview with Barron’s that Inphi thinks about innovation similarly. It’s the only company in the PHLX to outspend Marvell on R&D on a relative basis.
“The reason that we’re able to compete against some of these larger, well heeled competitors, is we do invest a much higher percentage of our revenue back into research and development than any of those companies,” Murphy said. “Customers love that number, because they want to bet on somebody who is betting on themselves and pouring a massive amount of their profits back into R&D.”
Advanced Micro Devices (AMD) is also among the top spenders on R&D. Similar to Marvell, AMD doesn’t actually manufacture the chips it designs, but rather hires foundries such as Taiwan Semiconductor Manufacturing (TSM) to produce them. AMD recently announced its own major acquisition, agreeing to buy Xilinx for $35 billion, one of the other companies that spends heavily on R&D.
Steves estimates that R&D for so-called fabless chip companies rose quickly in the second quarter, gaining 15% to $3.6 billion, among the big businesses he tracks. It’s no wonder: The cost of a single so-called five nanometer integrated design such as the M1 chip Apple made could cost nearly $600 million, according to an April note.
“If you look at what it takes to be using cutting edge semiconductor technology, cutting edge packaging, you’re going to have to plan that years ahead in advance,” AMD Chief Technology Officer Mark Papermaster told Barron’s last week. “It’s a long lead time, and high investment to be able to play in this high performance world.”
Also fabless, Silicon Laboratories (SLAB) is essentially a bet on the internet of things—devices found in smart home gadgets, but also in retail applications, HVAC systems, and commercial lighting. The Austin-based company also has a line of automotive chips, and makes data center products too.
For those familiar with Nvidia’s (NVDA) meteoric rise—both the stock and its technology—its place as the fifth largest proportional spender on R&D is likely not a surprise. The company’s industry-leading graphics processing units are used for playing the most complex videogames and in machine learning and artificial intelligence applications.
“It’s about investing R&D for the largest opportunities in front of us,” Nvidia CFO Colette Kress says.
Despite Intel’s (INTC) manufacturing trouble, and its lukewarm sentiment from Wall Street, the Silicon Valley company maintains a healthy amount of R&D spending relative to its size. R&D cost the company $13.36 billion last year.
“As an integrated design and manufacturer, we invest, not just in technology for the products but for manufacturing process technology that allows us to generate gross margins, or returns at the higher end of the industry spectrum,” CEO Bob Swan told Barron’s in September.
“We’re a much bigger company, with a much broader horizon. Since we invest both in product and in manufacturing process technology it allows [us] not to share the margins with other players in the industry. We keep them all for ourselves.”
Write to Max A. Cherney at max.cherney@barrons.com
November 19, 2020 at 07:00PM
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These 15 Chip Companies Lead the Way in Research Spending - Barron's
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