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

Markets & Products / Why should I care? / July 28, 2016
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.

These projections have averaged about a net 25% reduction. In most cases, the operating-expense reductions are not broken up into R&D, G&A, marketing, etc., but are expressed as a total amount of cost savings as a percent of revenue.

There are many ways to achieve these synergies. Some obvious ones that are likely to improve operating efficiencies include elimination of duplication of corporate management, e.g. CEO, CFO, etc., or consolidation of functions like corporate marketing, investor relations, public relations and more.

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Article from Walden Rhines, Chairman & CEO, Mentor Graphics, EE Times

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