Global R&D spending survey

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2 Global R&D spending survey Cientifica has surveyed the top 100 global corporate spenders in research and development over the last three years. Data was obtained from annual reports and encompasses corporations from Merck KGAA ($732m spent in 2004), to Microsoft ($7779m spent in 2004). A full list of the companies included in the survey, broken down by spend and sector is given at the end of this report. Top 100 R&D spend ($m) Taken as a group, the top 100 spenders invested $228,303m in R&D in 2002, growing to $253,639m in 2004, representing a healthy compound annual growth rate (CAGR) of 5.4%. (By comparison, Global GDP growth in 2004 was estimated at 4.9% (CIA)).

3 No. of companies in top 100 list Korea 2% Canada 1% Finland 1% France 5% 11% Italy 1% % 24% UK 4% Switzerland 4% Sweden 2% Netherlands 4% 5 0 Canada Finland France Italy Netherlands Sweden Switzerland UK Korea The geographic split in terms of number of companies comprising the top 100 spenders reveals the leading positions of The, and, which accounted for 41%, 24% and 11% of the total number respectively, for When the total spend is broken down by country, it s clear that the led the pack in 2004 with $102,369m (accounting for 40% of all spend), followed by ($56,902m, 22% of all spend) and then ($31,496, 12% of all spend). Note that the totals for each country are not the total corporate R&D spend for each respective country, but rather the total spend of those corporations which make the global top 100 list based on annual R&D spend. This caveat applies for all charts in this report. In terms of year on year growth however, Korea (consisting of LG and Samsung) is head and shoulders above the rest, with a CAGR of 38%. In second place is France with a CAGR of 18% (the trails with a CAGR of 7%).

4 The three major economic regions of the world have all experienced solid growth in R&D spending over the last three years, with The leading in absolute Dollar terms. However, yearly growth rates in R&D spend for the major global economic regions reveal significant disparities. The Asia Pacific region has drawn nearly level with The, while over the same period growth in R&D spend in W.Europe has retracted to just 3.2%.

5 Plotting R&D spend as a proportion of sales (R&D intensity) provides a clearer picture as to relative levels of spend, and indicates W.Europe in the lead with 6.6%, followed by The (6.5%) and then Asia Pacific (5.1%). The top two spenders by sector are Pharmaceuticals and Healthcare, and Automotive, with $59,332m and $58,836m respectively in Pharmaceuticals and Healthcare is also strong in the CAGR metric with 12.7%, however the leader is Consumer Products with 13.3% (Automotive lags at 5.7%). Three sectors have negative CAGRs over this three year period-chemicals, Telecom and IT, with -10.9%, -5.7% and -3.5% respectively. Although as shown in the chart below, IT has had a rebound in R&D spend in 2004.

6 Only two out of the fifteen sectors reduced their R&D spend between 2003 and 2004 (Chemicals (-10.8%) and Telecom (-3.4%)), while Food (Nestle) exhibited the strongest growth in this period (19.2%) followed by Software (16.3%) and Semiconductors (15.3%). The greatest swing was by Conglomerates which went from a decline of 5.5% ( ) to a growth rate of 14.4% between 2003 and The IT sector also showed a large positive swing, going from a 12.2% decline between , to a growth of 6.1% between 2003 and 2004.

7 If we put to one side the leading countries by R&D intensity which contribute only one or two companies to our survey (Canada, Finland and Sweden), The UK emerges as the top country by this metric at 10.7% for 2004, followed by The Netherlands (8.2%) and then Switzerland (7.9%). R&D intensity charted by sector reveals Software as the leader for 2004 at 18.2%, followed by Pharmaceuticals (12.5%) and then Semiconductors at a strong but declining 10.5%.

8 Taken as a group, the R&D intensity of the top 100 spenders has declined each year since 2002 by an average 0.6%. Only Food, Office equipment, Photography and the Consumer products sectors reported consistent growth in R&D intensity during the period.

9 R&D spend in China Although Chinese corporations do not qualify for our top 100 list in terms of R&D Dollars spent, growth rates are unsurprisingly impressive. State-owned companies currently spend the most on R&D and have exhibited stellar growth rates in recent years (CAGR of 79%) as shown below (Source : Shanghai Pudong Productivity Center). Of this State-owned group, the top 10 spenders accounted for $5.4bln of R&D spend in 2004:

10 Company list sorted by annual R&D spend ($m) R&D spend 2003 to 2002 to Sales R&D intensity (%) Country Company Sector MICROSOFT Software PFIZER Pharma+Healthcare DAIMLERCHRYSLER Automotive FORD Automotive GENERAL MOTORS Automotive TOYOTA Automotive SIEMENS Electronics MATSUSHITA Electronics ELECTRIC INDUSTRIAL INTERNATIONAL Computer hardware BUSINESS MACHINES JOHNSON & JOHNSON Pharma+Healthcare VOLKSWAGEN Automotive UK GLAXOSMITHKLINE Pharma+Healthcare France AVENTIS Pharma+Healthcare INTEL Semis SONY CORP Electronics Korea SAMSUNG Semis Finland NOKIA Telecom HONDA Automotive Switzerland NOVARTIS Pharma+Healthcare Switzerland ROCHE HOLDING Pharma+Healthcare MERCK & CO Pharma+Healthcare UK ASTRAZENECA Pharma+Healthcare NISSAN Automotive HEWLETT-PACKARD Computer hardware HITACHI Electronics CISCO SYSTEMS Telecom TOSHIBA Electronics Netherlands KONINKLIJKE PHILIPS Electronics ELECTRONICS UK BAE SYSTEMS Aero+Defense MOTOROLA Semis NIPPON TELEGRAPH Telecom & TELEPHONE BAYERISCHE Automotive MOTOREN WERKE LILLY (ELI) & CO. Pharma+Healthcare Sweden TELEFONAKTIEBOLAG Electronics ET LM ERICSSON CANON Electronics Netherlands EADS Aero+Defense France PEUGEOT CITROEN Automotive BAYER Pharma+Healthcare NEC IT BRISTOL-MYERS Pharma+Healthcare SQUIBB WYETH Pharma+Healthcare GENERAL ELECTRIC Conglomerate Korea LG Electronics FUJITSU IT Italy FIAT Automotive DENSO Automotive DELPHI Automotive AMGEN Consumer products

11 ($m) R&D spend 2003 to 2002 to Sales R&D intensity (%) TEXAS INSTRUMENTS Semis Canada NORTEL NETWORKS Telecom PROCTER & GAMBLE Pharma+Healthcare France ALCATEL Telecom SUN MICROSYSTEMS Computer hardware BOEING Aero+Defense ABBOTT Pharma+Healthcare LABORATORIES France RENAULT GROUP Automotive SCHERING-PLOUGH Pharma+Healthcare CORP. SHARP Electronics FUJI PHOTO FILM Photography Netherlands STMICROELECTRONI Semis CS ORACLE Software INFINEON Semis TECHNOLOGIES BASF Chemicals DU PONT Chemicals TAKEDA CHEMICAL Pharma+Healthcare INDUSTRIES UK UNILEVER Consumer products LUCENT Telecom TECHNOLOGIES UNITED Conglomerate TECHNOLOGIES SAP Software SANYO ELECTRIC Electronics MITSUBISHI ELECTRIC Electronics 3M Conglomerate SCHERING Pharma+Healthcare Switzerland NESTLE Food DEUTSCHE TELEKOM Telecom RICOH Office equipment DOW CHEMICAL Chemicals Netherlands AKZO NOBEL Chemicals APPLIED MATERIALS Semis FREESCALE Semis SEMICONDUCTOR LOCKHEED MARTIN Aero+Defense HOECHST Chemicals MEDTRONIC Pharma+Healthcare Sweden VOLVO Automotive ADVANCED MICRO Semis DEVICES AGILENT Telecom TECHNOLOGIES HONEYWELL Aero+Defense INTERNATIONAL NTT DOCOMO Telecom VISTEON Automotive AISIN SEIKI Automotive EASTMAN KODAK Photography EMC IT MITSUBISHI Chemicals CHEMICAL CORP SEIKO EPSON Electronics MAZDA Automotive Switzerland SYNGENTA Chemicals ALTRIA GROUP Consumer products ($m) R&D spend 2003 to to 2003 Sales R&D intensity (%)

12 France CIE GENERALE DES Automotive ETABLISSEMENTS MICHELIN SANKYO Pharma+Healthcare XEROX Office equipment MERCK KGAA Pharma+Healthcare

13 Company list sorted by industrial sector Aerospace and Defence UK Netherlands BAE SYSTEMS EADS BOEING LOCKHEED MARTIN HONEYWELL INTERNATIONAL Automotive $m R&D spend 2003 to to 2003 Sales R&D intensity (%) France Italy France Sweden France DAIMLERCHRYSLER FORD GENERAL MOTORS TOYOTA VOLKSWAGEN HONDA NISSAN BAYERISCHE MOTOREN WERKE PEUGEOT CITROEN FIAT DENSO DELPHI RENAULT GROUP VOLVO VISTEON AISIN SEIKI MAZDA CIE GENERALE DES ETABLISSEMENTS MICHELIN Chemicals and materials Netherlands Switzerland BASF DU PONT DOW CHEMICAL AKZO NOBEL MITSUBISHI CHEMICAL CORP SYNGENTA HOECHST

14 Computer hardware INTERNATIONAL BUSINESS MACHINES HEWLETT-PACKARD SUN MICROSYSTEMS Conglomerate GENERAL ELECTRIC UNITED TECHNOLOGIES 3M Consumer Products UK AMGEN UNILEVER ALTRIA GROUP Electronics Netherlands Sweden Korea SIEMENS MATSUSHITA ELECTRIC INDUSTRIAL SONY CORP HITACHI TOSHIBA KONINKLIJKE PHILIPS ELECTRONICS TELEFONAKTIEBOL AGET LM ERICSSON CANON LG SHARP MITSUBISHI ELECTRIC SANYO ELECTRIC SEIKO EPSON Food Switzerland NESTLE

15 IT NEC FUJITSU EMC Office Equipment RICOH XEROX Pharmaceuticals and Healthcare UK France Switzerland Switzerland UK PFIZER JOHNSON & JOHNSON GLAXOSMITHKLINE AVENTIS NOVARTIS ROCHE HOLDING MERCK & CO ASTRAZENECA LILLY (ELI) & CO. BAYER BRISTOL-MYERS SQUIBB WYETH PROCTER & GAMBLE ABBOTT LABORATORIES SCHERING-PLOUGH CORP. TAKEDA CHEMICAL INDUSTRIES SCHERING MEDTRONIC SANKYO MERCK KGAA Photography $m R&D spend 2003 to to 2003 Sales R&D intensity (%) FUJI PHOTO FILM EASTMAN KODAK

16 Semiconductors $m R&D spend 2003 to to 2003 Sales R&D intensity (%) Korea Netherlands INTEL SAMSUNG MOTOROLA TEXAS INSTRUMENTS STMICROELECTRONICS INFINEON TECHNOLOGIES APPLIED MATERIALS FREESCALE SEMICONDUCTOR ADVANCED MICRO DEVICES Software $m R&D spend 2003 to to 2003 Sales R&D intensity (%) MICROSOFT ORACLE SAP Telecommunications $m R&D spend 2003 to to 2003 Sales R&D intensity (%) Finland Canada France NOKIA CISCO SYSTEMS NIPPON TELEGRAPH & TELEPHONE NORTEL NETWORKS ALCATEL LUCENT TECHNOLOGIES DEUTSCHE TELEKOM AGILENT TECHNOLOGIES NTT DOCOMO