What Industry Spends The Most On Research And Development?

Research and Development expense reflects a company’s commitment to long-term growth through innovation. Companies sacrifice short-term earnings to develop innovative technologies to stay ahead of their peers. In this report, we analyzed the S&P 100 for their absolute and relative R&D spend. Of the S&P 100, 57 of the companies disclose R&D spend in their financial results.

The 57 companies operate in five different sectors, and we first took an average of R&D Expense as a percentage of Revenue in each sector.

The sector that spends the most on R&D is Healthcare, with a strong focus on developing and bringing to market new drugs.

On the other hand, Industrial, Energy, and Materials companies spend little on R&D - on average only 3% of Revenue. Their expenses include scientific research, technical support, and patent costs. For instance, oil companies Exxon Mobil and Chevron (ranked last and third last on the list) spend less than 1% on disclosed R&D. In fact, the only activity that Exxon listed is research on technologies to reduce greenhouse gas emission.

Next we ranked each company by R&D Spend as a % of Revenue, and showed its variance (positive or negative) from the average of its sector.

The top three companies on the list are all pharmaceutical companies Celgene, Bristol-Myers Squibb, and Merck & Co, spending 45%, 31% and 25% of Revenue on R&D, respectively, and each of them significantly above the sector average of 16%.

The second highest category was Technology, Media, and Telco. The top R&D spenders in TMT are chip-makers Qualcomm, Intel and Broadcom, and, in 7th place overall, Facebook. Both Qualcomm and Broadcom are semiconductor companies. In 2017, Qualcomm invested a large portion of sales in 4G and 5G-based technologies. Similarly, chipset giant Intel spent 21% of its sales on developing emerging technologies, including 5G, artificial intelligence, and autonomous vehicles.

Note: Amazon (ranked #22) and Netflix (ranked #25) are categorized as Consumer Discretionary, rather than TMT.

Lastly, we look at the relationship between R&D spend and Revenue Growth, to see if companies who spend more on R&D grow revenue faster.

For the fourteen Oil and Gas companies, average revenue growth was -5%. Similarly, for low R&D spenders in Consumer Staples, average revenue growth was -3%.

On the other hand, the average revenue growth since 2014 for the two highest R&D spending sectors, Tech and Healthcare, was 10% and 6%, respectively.

In total across the 57 companies, we see a slight positive correlation between Revenue Growth and R&D spend (correlation coefficient of 0.197). However, R&D is a long-term investment and continuous effort and, therefore, there might not be immediate effects on the business.

Key Takeaways:

  • The two industries that spend the most on Research and Development (as % of Revenue) are Healthcare and TMT, with an average of 16% and 13%, respectively.
  • With lower Revenue growth, the Industrial, Energy, and Materials companies and Consumer Staples companies spend much less on R&D (3%).
  • There is some correlation (correlation coefficient = 0.197) between R&D Spend and Revenue Growth.


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