Semiconductor R&D investment remains strong, supporting continued pace of patenting

Forecast increases in semiconductor revenues, as well as government incentives to semiconductor vendors, could translate to increased R&D and patenting in the sector, writes IPValue’s George Park in this co-published article

Over the past 12 years, total R&D spending for a set of 13 major semiconductor enterprises has increased with an 8% CAGR, in line with revenue growth. The number of patent families granted to these enterprises similarly increased between 2009 and 2017, although the growth rate slowed in the last four years of that period.

We examined the R&D spending and patenting activity of 13 companies in the semiconductor market. We chose those primarily focused on semiconductors which were not subject to major M&A activities that might distort trends. Major fabless, integrated device manufacturer (IDM), and foundry enterprises were included:

• Fabless: AMD, MediaTek, Nvidia, Qualcomm
• IDM: Infineon, Intel, Micron, SK hynix, STMicroelectronics, Texas Instruments
• Foundry: SMIC, TSMC, UMC

These companies include 10 of the top 15 semiconductor device vendors based on revenues, representing over 40% of the market. They also include three of the top five foundries, representing over 70% of that market.

R&D spending

Based on public financial filings, R&D spending trends by the 13 companies consistently grew from 2009 to 2020, a period which included the aftermath of the Great Recession as well as the outbreak of the covid pandemic. Average growth in R&D spending has held steady at around 8% per year.

Figure 1

While impressive, this investment in innovation could be seen as reflecting the overall robust business of these companies, whose combined revenues grew at approximately 9% over the same period. This tracking of R&D spending to revenues is apparent in Figure 2, which shows a steady marginal R&D of around 15% of revenues invested into R&D.

Figure 2

However, there are variations in the marginal R&D spend depending on the type of enterprise, as shown in Figure 3. Fabless semiconductor vendors, which are not exposed to the financial costs and benefits of operating manufacturing lines, were associated with higher average marginal R&D spend while foundries had lower averages.

Figure 3

Variation was also apparent at the individual company level. Using a sampling of the companies, Figure 4 plots 12-year average R&D margin arrayed against R&D spend, represented by the vertical axis as well as by the bubble size.

As mentioned previously, we see some fabless enterprises (such as Nvidia and Qualcomm) with large R&D margin, while TSMC has a smaller margin but higher overall R&D spending than most other companies in this sample. However, Intel is seen as having a higher than average R&D margin as well as an average R&D spend significantly greater than the other semiconductor enterprises.

Figure 4

Patent prosecution

Based on data as of February 2022, we counted the number of patent families associated with granted US patents for the 13 companies, focusing on:

• patent families versus individual patents to account for primary inventions versus continuations and divisionals;
• assets associated with granted patents to disregard applications that may not have resulted in grants; and
• patent families with priority year up to 2017, as it may take multiple years for an application to result in a US patent, especially if the starting application was from a non-US jurisdiction.

Considering the steady R&D spending by the 13 companies, we assumed that patenting activity would show a similar trend. The data in Figure 5 does show growth in the number of patent families with granted US patents from 2009 to 2013, but then the number appears to plateau.

Figure 5

Considering the relatively steady increase in R&D spend from 2013 to 2017, this plateauing of family counts can be associated with a lower number of families per given amount of R&D spend. However, as shown in Figure 6, there has been historical variability in this patenting “efficiency” and the reduced number of patent families per R&D dollar may just represent statistical variability.

Figure 6

A more consistent trend is seen in the patent families to R&D spend ratio for the foundries versus the IDMs and fabless vendors, as shown in Figure 7. This higher ratio (more families for a given spend on R&D) could possibly be associated with a higher percent of foundries’ R&D aimed at technologies more appropriately protected by patents versus knowhow or copyright.

Figure 7

Looking forward

As mentioned, we cut off the patent family count to those assets with priority year of 2017 and before, considering the number of years required to prosecute applications. We have seen that R&D spending has continued to grow since 2017, so we may expect that the rate of innovation in semiconductors has continued, leading to a steady stream of patent prosecutions.

However, it may be difficult to predict how this R&D spend from 2017 to today will end up translating to the number of granted patent families, particularly due to the pandemic starting in early 2020. Business shutdowns and work from home practices could have disrupted the innovation processes of many semiconductor enterprises. Furthermore, the business disruptions at prosecution firms and patent offices may have introduced further variability.

On the other hand, there are factors that may lead to increased patenting by semiconductor vendors from 2020 onwards. Per Figure 8, following an 11% drop in 2019, overall semiconductor industry revenues grew by 10% in 2020 and then by an even more impressive 25% in 2021. Further growth has been forecast for 2022 and, assuming that R&D spend continues to track revenues, the investment in innovation should continue. This could translate to increased patenting, though the ratio of the number of patent families per R&D dollar may dampen patent counts if the downward trend seen from 2013 to 2017 persists.

Figure 8

Current investment in semiconductor R&D and patenting may be further supported by government initiatives. US government legislative efforts such as the CHIPS for America Act, US Innovation and Competition Act, and FABS Act have been designed to support commercial investment in semiconductor manufacturing and design.

Government support for local semiconductor industries have also been proposed by the European Union, Germany, Japan, and South Korea, among other jurisdictions, and China has engaged in long-standing efforts to support its semiconductor industry.

In the upcoming years, we will see how these investments translate to new grants in semiconductor enterprise patent portfolios.

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