Where Industry and Security Intersect
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In 1999, AT companies participating in BIS’ survey spent at least $100 million on research and development -- about 3.5 percent of sales of $2.87 billion. Overall, the percentage of investment in R&D to sales appears roughly comparable to overall levels for the U.S. manufacturing sector31 as a whole.
Given the diversity of technologies employed in AT products, however, this level of investment may not be adequate for all segments of the AT industry. AT equipment that utilizes electronics, control technologies, or advanced materials might require higher levels of investment while companies producing simple products from commodity materials may have less demanding and less costly R&D needs.
Also, data show that smaller companies often devote a greater percentage of sales revenue to R&D than do bigger companies. Eleven large companies with collective annual sales revenue of $1.98 billion spent the equivalent, on average, of about 2.8 percent of sales revenue on R&D. The R&D expenditures by large companies exceeded $50 million and accounted for nearly half of R&D spending by all classes of AT companies participating in the survey.
In comparison, R&D spending by 27 mid-size companies amounted to about $16 million (3 percent of sales revenues of $526.5 million), or 16 percent of total respondent AT industry R&D expenditures. Small companies allocated in excess of $33 million to R&D, or 9.6 percent of sales revenues (after statistical correction) of about $374.4 million.
Consistent with the nature of many new small companies, R&D expenditures often are well above the three-percent range that is common for medium- and large-size firms. While the norm may be about 10 percent of sales revenues, R&D spending rates in excess of 150 percent are not uncommon. In one instance, a company reported an R&D investment rate of 4,500 percent–a figure achieved because revenues for the firm were virtually non-existent relative to $450,000 in R&D investment.
R&D spending patterns for 1998 and 1997 are not very different from those found in 1999. Large AT companies had sales of $1.81 billion and spent at least $42 million on R&D–about 2.6 percent of sales revenue.32 The slightly higher level of R&D expenditures as a percentage of sales in 1999 (2.8 percent) may be explained by the $100 million boost in revenues attained by large firms in 1999. This gain may have allowed companies to increase R&D spending to meet needs while relaxing spending as a percent of revenues.33
Mid-size companies in 1998 appear to have allotted slightly more funding to R&D, as measured as a percentage of sales revenue (4.1 percent34 versus 3.7 percent) than in 1999. However, actual spending in dollars for R&D still climbed year after year — from $13.4 million in 1998 to $15.9 million in 1999. Overall revenues for the group for these years were $467 million and $527 million, respectively.
Flat sales for small companies did not reduce investment in R&D. As a percentage of sales, smaller companies as a group in 1999 increased R&D spending to about 9.6 percent on average from 8 percent in 1998. Sales revenues for the group in 1999 were $374 million compared to year-earlier sales of $378 million in 1998.
In 1997, small firms as a group contributed on average the equivalent of about 8.5 percent of sales revenue to R&D; overall sales revenue was $354 million. Large companies in 1997 had sales revenues of $1.34 billion, a sum equal to about 3 percent of that was invested in R&D. Mid-size companies appear to have allocated slightly more than three percent to R&D in 1997 on sales revenue of $569 million.
31 See National Science Foundation, Science And Engineering Indicators 2000, Volume 2, Appendix Table 2-57.
32 R&D percentage calculated on a sales base of $1.64 billion because some companies supplied sales data but no R&D spending information.
33 The 1999 sales gain cited excludes additional revenue for the group that results from the addition of a new company with sales in excess of $60 million.
34 Percentage
calculated on a sales base of $330.3 million because not all firms provided
R&D spending data.