Corporate R&D Report

Latest data show underlying strength in Canadian corporate R&D spending

The latest data on R&D spending in Canada’s industrial sector underscore the surprising resiliency and shifting sectoral composition of the nation’s top ranked performers. While perennial sectors such as telecommunications equipment, aerospace and microelectronics continue to have a strong presence, emerging industries such as fuel cells are now entering the upper echelons of Canada’s R&D performing elite.

Overall the Top 100 R&D spending firms increased their R&D outlays by 3% from $11.5 billion in 2000 to $11.9 billion in 2001. The annual increase jumps to 23.3% when Nortel Networks Corp is taken out of the mix. As expected, Nortel’s R&D expenditures plummeted by nearly $1 billion to $4.99 billion, and the decline is certain to continue for 2002. While other companies in the telecom sector also posted stagnant or slumping R&D spending, other sectors performed strongly. Pharmaceuticals and biotechnology, software and computer services and even energy registered strong increases, raising the overall total in a year that definitely won’t go down as a banner year for high tech.

The data are contained in the report, Canada’s Top 100 Corporate R&D Performers 2002, produced by RE$EARCH Infosource Inc, a division of The Impact Group and sister firm to RE$EARCH MONEY. The full list of the Top 100 will be included in the next edition of RE$EARCH MONEY and will be posted on the website of RE$EARCH Infosource June 25 (www.researchinfosource.com). The full report will be available in July and with exclusive data on nearly 600 companies.

TELECOM REMAINS DOMINANT

While the telecom equipment industry was pummeled in 2001, it remained a strong R&D performer, despite predictions to the contrary (R$, June 25/01). The sector placed 18 firms in the Top 100 with a total of $6.4 billion in R&D. For the first time since data have been collected, telecom firms occupied the first and second spots on the Top 100. This is due to the surprising R&D performance of JDS Uniphase Ltd, which boosted R&D expenditures by nearly 200%. Like Nortel, however, expect to see JDS slump in 2002, as the firm has experienced many of the same troubles as Canada’s telecom king.

Pharmaceutical and biotechnology firms continued to be strong players in corporate R&D, holding down the number two spot with 25 firms on the list, spending a total of $1.27 billion. That compares with $972 million last year, although the year-over-year mix of firms is slightly different.

Software and computer firms represented the third largest sector in 2010. placing 16 on the list. The sector was led by IBM Canada Ltd, which had estimated R&D spending of $250 million. Overall the sector spent $955 million, up 19.2% from the 2000.

The aerospace ranked fourth in R&D in the ranking, spurred on by the historically strong R&D performance of Pratt & Whitney Canada Corp. Pratt performed $440 million in R&D, up nearly 33% from 2000 and returning to levels it achieved in the late 1990s.

After years of low R&D spending, some energy firms are showing signs of increased R&D intensity, placing fifth as a sector. Atomic Energy Canada Ltd is the top ranked energy firm with R&D spending of $178.9 million, followed by a Ballard Power Systems Inc. Ballard reflects the new generation of energy firms in Canada, devoting $128 million in R&D on fuel cells R&D, up nearly 45% from 2000. The Vancouver-based star of the alternative energy scene still has few product sales, giving Ballard an R&D intensity of 228.4% (R&D as a percentage of revenue).

Ontario Power Generation (formerly Ontario Hydro ) was the next largest energy R&D performer, with $42 million in expenditures for a ranking of 44. It’s a far cry from the days when Ontario Hydro routinely ranked in the top 10 with expenditures nearing $200 million annually.

The Top 100 spenders ranking contains many surprising developments — both positive and negative — that reflect the diversity of R&D spending patterns and strategies employed by corporate Canada. One firm of of note is Tembec Inc, a member of sector (forestry) not known for its R&D intensity. Tembec placed 11th in the 2001 ranking with R&D outlays of $152.1 million, up nearly 104% from 2000. It remains the only forestry company to penetrate the Top 100 ranking.

Close observers of corporate R&D will undoubtedly notice several prominent omissions from the Top 100 ranking. As in past years, these firms have refrained from providing R&D spending data. The federal government does not have mandatory reporting requirements for R&D.

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