R&D, Which Holds Up In Fourth Quarter, May Dive In The First

According to The Wall Street Journal, large US companies held their R&D spending steady in the fourth quarter of last year even though in most cases their revenue fell.

According to the paper, “Companies by and large realize that large reductions in R&D are suicidal,” says Jim Andrew, a senior partner at the Boston Consulting Group. Similar words may not be heard during the rest of this year.

The Journal’s survey is heavy with technology companies such as Google (GOOG), Microsoft (MSFT), Qualcomm (QCOM), and IBM (IBM) and light on Big Pharma firms including Pfrizer (PFE) and Merck (MRK) where falling sales of patented drugs are causing cuts in R&D. Large oil companies such as Exxon (XOM) are also not represented. Falling oil prices are almost certainly lowering their spending on new exploration methods. The same holds true for large telecom firms including AT&T (T) and Verizon (VZ) where their critical cellular divisions facing slowing growth.

As consumer and enterprise spending put tremendous pressure on profits, the R&D habits of large US firms is not likely to continue into this year.

Douglas A. McIntyre