Silicon valley companies trim R&D spending

30 September 2002 Silicon Valley’s largest technology companies cut their spending on research and development (R&D) by an average of 6% in the first half of 2002, as the recession in the IT industry showed no sign of abating, according to a survey by the Financial Times (FT).

Silicon Valley’s 30 top technology companies trimmed their R&D spending to $11.9 billion (€12.1bn), compared to $12.5 billion (€12.7bn) in the first-half of 2001. Of this 2002 figure, 16 companies reduced their R&D levels, four remained unchanged, while 10 actually increased their levels of investment.

Companies that reduced their spending included systems vendor Sun Microsystems, down a tenth to $2.3 billion (€2.3bn), and networking hardware giant Cisco Systems, which trimmed spending by 14% to $1.6 billion (€1.6bn). Among those companies that increased their R&D budgets were chip giant Intel and semiconductor component supplier Applied Materials.

The overall slump in R&D is much steeper than during previous recessions, such as in 1991. According to industry analysts, this is a major cause for concern because the recession of 1991 was far worse than the current slowdown, said Vadim Zlotnikov, a technology strategist at investment bank Sanford Bernstein. In fact, since 1960 American industrial spending on R&D has never fallen, according to the US National Science Foundation.

The FT’s research raises some questions about whether Silicon Valley can remain the global capital of technological innovation or whether the pace of development in the computer industry itself is slowing down.

“Silicon Valley will never be the same. Those who believe this [downturn in R&D] is merely a cyclical downturn are mad. They cannot see what is happening in front of their eyes. Our industry is going to mature and as something matures, the rate of innovation does slow,” Oracle CEO Larry Ellison told the FT.

The drop in R&D budgets has been accompanied by a much steeper fall in the amount venture capital (VC) firms are investing in Silicon Valley. During the first six months of 2002, VCs cut their investments by half to $3.9 billion (€4bn), down from $7.85 billion (€8bn) in the same period of 2001, according to accountants PricewaterhouseCoopers and research company Venture Economics.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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