Massive decline in Blackberry R&D pushes Top 100 company total into negative territory

A dramatic decline in R&D spending by Blackberry Ltd in 2014 was all it took to push outlays from Canada's Top 100 Corporate R&D spenders downward for the first time since 2010. R&D expenditures by the Waterloo ON-based provider of communications products and services plummeted $537 million or 40.7% between 2013 and 2014 to $785 million but remains in the #2 spot as the firm works to reverse a stunning decline in sales of its once ubiquitous smart phones.

Top ranked Bombardier Inc also registered a $172-million, 7.8% decline as the financially distressed aerospace firm is turning to government to grapple with massive cost overruns on its C Series aircraft.

In fact, seven of this year's Top 10 registered declines, although R&D spending of the Top 100 was up for 69 firms, down for 30 and flat at one. Revenue increased 7.3% for the 87 companies that provided revenue data.

"I'd hardly say it's been a banner year. We look at the largest spenders but there are about 25,000 companies in Canada that spend on R&D," says Ron Freedman, CEO of Research Infosource Inc. "The situation is not as dire as many people think. Not all business innovation spending is R&D so there's a lot of innovation-related spending that doesn't appear in the data."

The lackluster year's Top 100 total of just $12.3 billion represents a 1.6% drop from year before , underlining the impact of slumping R&D performance across a range of sectors from communications and telecommunications equipment (-21%) and energy/oil and gas (-12.1%) to aerospace (-5.5%).

In the positive column, software and computer services firms collectively increased their R&D spending by 11.3% while pharmaceutical and biotechnology firms boosted their outlays by an impressive 23.4%.

Several firms in the Top 100 achieved remarkable R&D increases — six in the life sciences — and the majority with low revenues. Exceptions are stalwart Mitel Networks Corp, a 43-year old communications equipment manufacturer. It posted a year-over-year R&D increase of 127.8% to $130.7 million, vaulting the Kanata ON-based company to #24. The majority of the increase is accounted for by its 2014 acquisition of Concord ON-based Astra Technologies Ltd which recorded $56.6 million in R&D in 2012 (R$, November 26/13).

High-tech darling Shopify Inc doubled R&D outlays from $15 million to $30 million to nail down the #51 position.

While there is debate over whether Canada's relatively low business R&D expenditures are actually a problem, the majority of policymakers tend to regard increased spending positively. The problem therefore is diagnosed as either a failure in government policy or a problem of business owners and managers not placing enough importance on R&D- and innovation-related activities as a means to boost competitiveness and the bottom line.

Freedman says the new Liberal government would be wise to examine the effectiveness of the Scientific Research & Experimental Development (SR&ED) tax credit program and take steps to either improve it or scrap it for a new approach.

"SR&ED is our biggest support program so look at that if you think business R&D is weak," he says. "More spending is not necessarily a good thing. There's good R&D and bad R&D (R$, November 12/14).

R$