SCOTTSDALE, AZ – The tepid semiconductor market isn’t slowing spending on chip research and development. First quarter semiconductor R&D grew 12% to $11.1 billion compared to the same period last year, says IC Insights.

R&D spending as a percent of sales stood at 17.5% compared to 16.4% in the first quarter of 2007.

Last year, integrated device manufacturers, fabless semiconductor companies and pure-play wafer foundries spent a total of $45.7 billion on R&D and related engineering activities for new IC products, says the research firm. 

In 2007, industry-wide R&D expenditures grew 8% year-over-year. R&D and engineering expenditures as a percent of semiconductor sales rose to 17.9% from 17.2% in 2006. In contrast, R&D expenditures as a percent of semiconductor revenues averaged 14.9% between 1990 and 2007.

With next-generation IC processes becoming more expensive to develop and IC design costs exploding, R&D and engineering budgets have increased at a faster rate than the industry's sales growth since the early 1990s, according to IC Insights. 

R&D and engineering expenditures increased at a CAGR of 12.7% between 1990 and 2007, while semiconductor sales grew at a CAGR of 9.9% in the 17-year period. 

Overall, IC Insights expects this trend to continue into the next decade, but R&D expenditures in 2008 are forecast to rise just 8% to $49.2 billion, as some IC makers attempt to curb spending and transfer some development activities to third-party foundries.

In the first quarter, IDMs collectively spent 17.9% of revenues on R&D and related engineering activities, while fabless semiconductor suppliers averaged 25.1% of sales on R&D and engineering costs. Meanwhile, pure-play silicon foundries spent 7.1% of total sales on R&D and engineering expenditures.