Corporate R&D makes modest gains in FY04 as majority of top firms boost spending

Canada’s corporate R&D spenders appear to be making a comeback. After two years of decline, the nation’s top performers registered a 3% increase in FY04 for a total of $11.3 billion. Of the 99 firms providing complete data, 62 increased spending in FY04 while spending at 35 firms declined and two remains the same. This compares to last year when 45 firms reported increased R&D outlays.

Even Nortel, whose R&D expenditures were in freefall since the telecom meltdown, has largely staunched the bleeding with $2.549 billion in R&D spending, a relatively modest annual decline of 7.2%. And Bell Canada has become an extremely important R&D player, locking onto the #2 spot with expenditures of $1.451 billion. Although Canada’s largest telecommunications firm is reporting a year-over-year decline of 2.65%, it should be noted that it restated its FY03 R&D data, boosting that year’s total from $1 billion to $1.49 billion.

Whether the corporate R&D turnaround can be sustained or even lead the charge in improving Canada’s overall R&D intensity is a subject of considerable debate. Many are speculating that if corporate Canada continues to boost revenues, increased R&D spending is sure to follow.

“Corporate revenues can increase and decrease dramatically in a short period of time, but expenses like R&D are not so volatile,” says Ron Freeman, co-publisher of RE$EARCH MONEY and CEO of Research Infosource, the Toronto-based firm that generated the data. “It’s a very solid year for corporate R&D and could represent a turnaround. But looking at the economy as a whole and long-term competitiveness, we need to sustain the momentum.”

The R&D lag behind corporate revenues is reflected in FY04’s decreased R&D intensity (R&D spending as a percentage of revenues) which declined 11.5% over FY03.

The top 10 corporate R&D spenders are largely unchanged but there has been some shifting of position and one new addition.

Alcan Inc increased its R&D spending by an impressive 58.5% to $311.1 million, moving up one position to #7 and bumping perennial top 100 performer Ericsson Canada Inc down one notch to #8.

Alcatel appears on the list for the first time, ranking #10 with $190 million. Alcatel’s Canadian R&D operations are in Kanata ON, where Newbridge Networks Corp was based before Alcatel acquired it several years ago. Newbridge once occupied the #4 position on the corporate R&D ranking with $300 million in R&D back in FY98.

The information and communication technology (ICT) sector continues to dominate Canadian corporate R&D, accounting for 55% of all Top 100 R&D spending. Telecommunications equipment (largely Nortel) is the single largest ICT sub-sector (28%), double that of telecommuncation services (14%).

Pharmaceuticals and biotechnology are also strong (17%), as is software and computer services (7%) and automotive (6%), the latter dominated by Magna International which has ranked #3 for the past two years.

The booming oil and gas sector has boosted the R&D performance of several firms, most notably EnCanada Corp, which increased its R&D outlays by nearly 120%to $123.2 million for a #16 ranking. Also up are Imperial Oil Ltd ($70 million/+11%), Shell Canada Ltd ($28 million/+180%) and Petro Canada ($17 million/+13.3%).

A complete list and analysis of Canada’s top 650 R&D companies will be available later this year. FMI: www.researchinfosource.com.

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