Are the world's tech behemoths getting more bang for their lavishly splurged R&D bucks in 2022?

R&D is the bedrock upon which an enterprise's commercial triumphs are built. Any disappointing outcome or inefficiency originating therefrom can spell out the company's economic demise in our cutthroat capitalist coliseum. Competitivity of goods and services could dwindle, leading to a sharp decline of revenue, gross and net operating profits.

In this op-ed, I have selected 14 of the world's major tech companies (as seen under Table 1), in light of their market value and rank, to review how they fare against each other in terms of their R&D total expenditure, R&D spending as a percentage of revenue ratios, and R&D profitability, for the reader's discerning regard.

R&D spending rankings

Among the 14 tech giants' R&D outlays in 2022, Amazon stood head and shoulders above the rest with an immense US$73.2 billion, followed consecutively by Alphabet (Google) with US$39.5 billion, Meta (Facebook) with US$35,3 billion, Apple with US$27.7 billion and Microsoft with US$26.6 billion. Samsung came in 6th place, whereas the recently exasperated Intel fell to 7th. Taiwan's crown jewel, TSMC, ranked 10th.

The majority of the listed R&D expenditure information was drawn from the companies' income statements, with the exception of Amazon and Samsung, which utilize atypical nomenclature for their accounting practices.

Amazon terms its R&D investments as "Technology and Content" (T&C). This deviation from standard accounting categorization presented a small hiccup in the drafting of the present thesis. However, one can determine by going through the trouble of poring through various financial databases that Amazon's T&C figures are intrinsically not unlike those labelled under the R&D designation, though some other cost items may also be encompassed therein.

Samsung's R&D costs are not shown independently under the income statement, but tabulated under "selling and administrative expenses" (SAE). At every quarterly earnings call, Samsung repeatedly reiterated that R&D costs are recorded in smaller fonts under the "SAE" heading within the financial statement for interested parties' inspection.

R&D spending as a percentage of revenue ratios

Regarding the percentage R&D spending takes up in the total revenues of these 14 tech companies, Meta topped the charts at 30.3%. This figure testifies to their unyielding mission to advance the technological gospel of the metaverse. From 2nd to 5th place, respectively, are Intel with 27.8%, Nvidia with 27.21%, AMD with 21.21%, and Qualcomm with 19.82%. Samsung and TSMC landed at 11th and 12th place with 8.25% and 7.21%, respectively.

Intel has always placed strong emphasis on R&D innovation, though the company has not performed well, ergo the higher R&D cost to revenue ratio. Conversely, 3rd to 5th place contenders, Nvidia, AMD, and Qualcomm, as renowned integrated circuit design (IC design) companies, found justifications for their larger ratios as heavier R&D costs are typical for their industrial niche. Nonetheless, Taiwan's MediaTek's ratios fell at 21.3% and 19.5% for 2022 and 2021, respectively.

As evidenced in Table 1, the company with the lowest R&D as a percentage of revenue ratio is Tesla at 3.77%, which for the previous three years has placed at 4.82% (2021), 4.73% (2020) and 5.46% (2019). The humble ratios run in contrast to its counterparts, which is largely attributable to Tesla's success in 2022. Massive sales of its various electric vehicles caused an exhilarating upsurge of revenue growth at 51%, whereas accrual of R&D expenditure only stagnated at 18.6% per annum, hence further lowering its R&D expenditure fraction.

R&D profitability

One would be remiss to solely credit the aforementioned figures to determine the efficacy of each corporation's R&D commitments, which explains why R&D profitability, as a metric, has been introduced in this commentary. By adoption of the formula whereby net operating income is divided by R&D expenditure, we can develop an idea as to how much profit is gleaned for each R&D dollar spent.

On Table 1, TSMC stands gloriously at the zenith with US$6.8682 per dollar spent on R&D. The 2nd to 5th place holders are Tesla with US$4.441, Apple with US$4.1211, Microsoft with US$3.1102 and Broadcom with US$3.1011, respectively. The cellar dweller being Intel with a mere exiguous return of USD 0.1673 per 1 USD stumped up for R&D. Whilst Amazon was most generous in its R&D funding, their actual returns only landed them at the penultimate spot.

Taking into account the Lagged Effect inherent of R&D disbursements, it can be surmised that the payoff would only take shape either in the following financial calendar or the one thereafter. This is evinced under "Net Operating Income of 2022/R&D spending in 2021" in Table 1, wherein TSMC continues to be at the forefront with USD 8.4172 , and Intel underwhelmingly at USD 0.1537 holding the wooden spoon.

Juxtaposition of R&D profitability figures among TSMC, Samsung and Intel for the previous 5 years

In all fairness, one might not be doing justice to Intel's R&D profitability outturns. Should one look intelligently into TSMC, Samsung and Intel's R&D Profitability histories, a convincing narrative arc can be etched, as shown below:

TSMC: USD 6.882 (2022), USD 5.2109 (2021), USD 5.1768 (2020), USD 4.0769 (2019), USD 4.4662 (2018).

Samsung: USD 1.7408 (2022), USD 2.3049 (2021), USD 1.7049 (2020), USD 1.3948 (2019), USD 3.2093 (2018).

Intel: USD 0.1332 (2022), USD 1.2808 (2021), USD 1.7467 (2020), USD 1.6491 (2019), USD 1.7216 (2018).

TSMC's R&D profitability digits stridently trumped over those of Samsung's and Intel's. Though, all of their numbers somewhat subsided in 2018. Particularly to note are the effects of how price fluctuations of the Random-Access Memory (RAM) market managed to drag down Samsung's R&D profitability digits. Intel's figures, however, surpassed those of Samsung's in 2019 and 2020.

After Pat Gelsinger assumed throne as CEO, Intel's business performance quandary can only be miserably construed as a fine kettle of fish. As to how long the current board of directors and shareholders are able to put up with his leadership, such a riddle can only be answered by how gleefully well their products are received by consumers this year.

Table 1 R&D spending and profitability ratios of the world's leading tech firms in 2022

Compiled by: Prof. Kuo-Hua Chou

Apple, Microsoft, Qualcomm, NVIDIA and Broadcom do not prepare their financial statements according to the calendar year system. Thus, all of the shown figures have been adjusted according to the Trailing-12-Months standard, so that comparisons are done with all of the corporation's figures fitting within a closely parallel timeframe. The R&D spending digits for both Samsung and ASML have both been converted from South Korean wons and Euros into US American Dollars, as per the currency exchange rate fixed on 31^st of December, 2022. R&D Profitability denotes how much net profit is gained for every 1 USD spent on R&D.

(Editor's note: Passionate in teaching and sharing, Kuo-Hua Chou currently serves as an Associate Professor in Taiwan's National Pingtung University, teaching accounting. He has been dedicated to constructing sites teaching accounting, XBRL, and semiconductor industry analysys. The majority of his teaching material and written work are open to public access: http://www.ais.nptu.edu.tw)