$8.8 billion R&D spending spree may soon end

Led by a $6 billion investment from Nortel Networks, research and development spending in the Canadian IT industry grew to $8.8 billion last year, a 29 per cent increase from 1999, according to a new report

But when the 2001 numbers arrive – look out.

“What we’re seeing in the IT sector generally is that [2000] was an absolutely incredible year. The bad news is that it’s a very fragile picture . . . next year we may see a really precipitous decline,” said Ron Freedman, Toronto-based president of Research Infosource, which prepared the report.

This fragility results partly from the general economic slowdown that had not yet shown up in 2000’s figures. However, Freedman also attributes it to Nortel’s dominance, and the ripple effect created throughout the whole Canadian IT industry by the company’s well-documented troubles.

“I’ve already seen a report in print to the effect that Nortel is planning on shrinking its (R&D) spending from roughly $6 billion this year, to $4 billion next year. So that in itself is going to take a huge amount of money off next year’s total,” Freedman said.

Besides Nortel, some other big R&D spenders identified in the report were telecommunications companies Ericsson Canada ($237M) and JDS Uniphase, Geac ($120M), Cognos ($80M), and Corel ($65M) in software and computer services, and PMC Sierra ($203M) in electronic parts and components.

By province, R&D spending by B..C companies experienced the highest rate of growth at 73 per cent, followed by Ontario at 30 per cent and Alberta at 16 per cent.

According to the report, Vancouver-based Creo Products Inc., a supplier of prepress printing and graphic arts software and hardware, posted one of the largest year-over-year increases in R&D spending.

The $100 million Creo spent in 2000 was more than double the previous year’s expenditure, partly due to its acquisition of Scitex, an R&D-heavy Israeli company, said Rochelle van Halm, a company spokesperson.

As a result of Creo’s nine-figure investment, customers can expect to see new software that allows the proofing of very large graphics files over the Internet, new kinds of printers, and improvements in computer-to-plate technology and direct-offset printing, van Halm said.

Mindful of the industry-wide slowdown, van Halm explained that since Creo, like most technology companies, lives or dies by its “new and improved” products, she doesn’t anticipate any significant changes in the company’s research expenditures.

Although Freedman said that a drop in spending for next year is almost a certainty, he agreed that when IT firms fall on hard times new product development is often the last area on the chopping block.

“What we find is that companies try as much as they can to preserve their R&D spending because they recognize its importance for the long-term future of the company,” he said.

Research Infosource is online at http://www.researchinfosource.com/.

Creo Products is online at http://www.creo.com/.