Governments, Companies Continue R&D Spending In Recession

Federal R&D spending is set to increase: The president’s 2010 budget request for the Networking and Information Technology Research and Development (NITRD) program is $3.926 billion, an increase of $44 million over the 2009 estimate, a NITRD report said. Robert Atkinson, president of the Information Technology and Innovation Foundation, also praised some $13 billion in increase in federal R&D funding in the stimulus package. Under the American Recovery and Reinvestment Act, five federal agencies reported preliminary allocations of $760 million to investment in NITRD research areas, the agency said. The National Science Foundation, Department of Energy, NASA, National Institute of Standards and Technology and National Oceanic and Atmospheric Administration will use the funds to expand and upgrade networking and high-end computing infrastructures, expand R&D in cybersecurity, human-computing interaction and information management, high-confidence software and systems and increase investments in education and training, NITRD said.

But there has been a shift in R&D from basic research that may have long-term benefits to research focused on more immediate needs, the Telecommunications Industry Association said, noting that the Defense Advanced Research Projects Agency is now primarily funding projects that would yield results within a year or two. Although more than $140 billion was spent on R&D in 2008, an all-time high, it accounted for only one percent of overall GDP, TIA said. A smaller share of recent R&D spending has been on basic research than in the past, it said.

Officials urged better ways to spend federal R&D money: The government should spend more R&D on managing a much more complex network and all sorts of devices linked together in an IP network, Atkinson said, noting the transition to IPv6, the next generation Internet protocol.

TIA urged the government to focus federal research money on key technical areas “where basic research is needed on issues facing the development of next-generation networks” which will foster the deployment of universal broadband, including affordable broadband access and connectivity, using all available media,” and carrying all services to all customers everywhere, Danielle Coffey, vice president for government affairs, said. TIA favors federally supported pre-competitive, basic telecom research that focuses on the long-term future, rather than the 18-month development cycle of a given company’s next product, she said. She warned that decreasing emphasis domestically on the importance of funding research in this field is strengthening the growth of research funding and related institutions overseas, as other countries seize an opportunity to outpace the U.S. and companies find high-level support from other governments. This creates an incentive for companies to move research facilities to other countries where funding and support exist, she said.

The private sector investment is a very large percent of U.S. R&D funding, upwards of 70 percent, Casey Coleman, General Service Administration chief information officer, said, citing the Science and Engineering Indicators report by the National Science Board. Multinational corporations’ R&D expenditures outside their own country continued to rise and shifting away from Europe to emerging Asian markets, she said on a GSA blog.

Major telcos like AT&T, Verizon and Sprint Nextel said they don’t disclose R&D spending numbers, their spokesmen said. But AT&T will invest “more than any other telecom company in 2009,” its spokesman said, saying the company expects overall capex to be in the $17 to $18 billion range this year, down from $20.3 billion last year.

Equipment makers like Motorola said they've learned from the past that even in downturns, they need to continue investing in R&D to maintain competitiveness when the economy improves. Motorola, which invested some $4 billion in R&D annually from 2006 through 2008, plans to continue to fund R&D this year, based on a percentage of sales, that supports its key business strategies and for long-term growth, a spokeswoman said. Its R&D will focus on next-generation video, public safety multimedia, next-generation enterprise solutions, 4G broadband networking, mobile device displays, audio quality, power management and location-based services, she said.

Technology upgrades seemed to be the focus of R&D spending among manufacturers: Alcatel-Lucent is shifting its R&D spend from legacy to next-gen technologies, spending 60 percent of its R&D this year in four areas in which it spent 40 percent of its R&D in 2008: Next-gen wireless access (LTE, WCDMA and converged RAN), fixed access, IP (service routers, carrier Ethernet, evolved packet core and IMS) and optics. The company is expected to spend nearly $2.7 billion in R&D this year (or about 18 percent of sales), slightly over last year’s level, said RBC Capital Market analyst Mark Sue. “There is more product rationalization required at Alcatel-Lucent and the focus remains LTE, WCDMA, fixed access, and IP,” he said. The company’s market share still remains subscale in these segments so the company must spend in R&D to catch up, he said.

Ericsson saw R&D as key to getting 3G contracts in China. The company plans to spend more than $146 million in R&D in China this year as the country builds its 3G network, said Erik Feng, Ericsson executive vice president. The company’s China-based R&D team will expand to some 2,700 this year from 1,700 last year, he said.

To assist companies in their own R&D efforts, the R&D tax credit may become permanent, TIA said. For the past several years, the credit has been extended on a year-to-year basis, or for not more than two years at a time. The industry has long argued that the enactment of a permanent R&D credit would allow companies to take the existence of the credit into account as they plan for longer-term R&D efforts.

Meanwhile, a scholar warned that companies should be wary of spending their own research money chasing after stimulus dollars. Companies should remain focused on their core business and not gambling that heavy spends on new technologies will bring profits, said William Duggan, a senior lecturer at Columbia Business School.