R&D spending boom forecast for U.S. firms

Battelle Institute sees `bullish' year for research budgets

Capital investment

January 01, 2000|By Mark Guidera | Mark Guidera,SUN STAFF

With year 2000 computer glitch concerns behind them, company executives in Maryland and nationwide will turn their attention -- and budgets -- to research and development projects in a big way this year, predicts a widely watched annual report just published.

That spending should help fuel the economy's record boom as companies seek to hire more engineers, scientists and other skilled workers, said one of the report's authors.

In a word, said Jules J. Duga, senior researcher for Battelle Memorial Institute, a nonprofit technology research outfit in Columbus, Ohio, R&D spending this year will be "bullish." Duga is also a co-author of the Battelle-R&D Magazine annual forecast of U.S. research and development activity.

The report predicts a "major resurgence in R&D support and activity in the United States" in the year ahead.

Spending on R&D nationwide will rise 8 percent to $266 billion in 2000, the report projects.

Private industry spending will account for more than half of that -- $187 billion. Overall, companies will boost R&D spending by 10 percent, 2 percent more than the predicted national average.

R&D spending is important not only because it fuels hiring and other aspects of the economy, but also positions U.S. industries to develop new technologies and remain competitive with global rivals in the long term.

The Battelle-R&D Magazine report predicts significant surges in R&D spending in the pharmaceutical, communications, office computing and electronic components sectors.

The rest of the expected surge in R&D funding will come from the federal government and universities and nonprofit groups, which often contract for research projects.

One reason for the expected spending surge, said Duga: Many corporations are flush with cash from record profits last year, and plan to allocate more money for research and development of new products and services.

Also, he said, "companies are looking at where they need to be in five to 10 years to remain competitive. They have to spend the money now to get there."

In some cases -- not all -- the increased spending will involve hiring more engineers, scientists and the like to work on specific projects, Duga said. Companies unable to find the right skilled workers might end up not spending as much as expected.

Meanwhile, companies will invest in research that fosters technology "platforms" that can support development of products and services in the years ahead, said Duga.

An interesting trend, the authors found, is that competitors in specific industries are increasingly teaming up to underwrite basic research at universities and other organizations in the interest of advancing specific technologies for their own projects.

R&D spending by U.S. companies, universities and the federal government this year will be part of one of two historical peaks in such spending during the last 30 years, Duga said.

"We are in a peak period that should last for at least another three to five years," barring an international crisis or stock market crash, he said.

Among the Maryland-based companies expecting R&D spending increases this year are PE Corp.-Celera Genomics Group, a fast-growing gene research company in Rockville.

Stephen Push, a company spokesman, said Celera projects that it will spend more than $150 million by the end of its 2000 fiscal year, which ends in June. That is more than triple the $48 million the company spent on R&D in its 1999 fiscal year. The company is gunning to be the first to compile a complete blueprint, or map, of all 150,000 human genes.

Other Maryland-based biotechnology and bio-pharmaceutical companies, such as Human Genome Sciences Inc. and MedImmune Inc., are expected to boost R&D spending as they race to move drug candidates into human clinical trials or expand testing of the drugs.

Lockheed Martin Corp., the big aerospace and defense contractor based in Bethesda, spends roughly $700 million every year on research and development.

While the company is embarking on a far-flung effort to streamline its operations and boost sagging finances, executives have not revealed whether research money could be cut back.

While Lockheed Martin was closed for the holiday this week, one expert said it is unlikely that a company struggling for footing in several competitive fields would trim research.

"I don't have any reason to believe that they're going to be changing their rate of expenditure on R&D," said Paul R. Nisbet, a financial analyst with JSA Research Inc. "It would hurt them if they were to cut that back, particularly with their emphasis now on the commercial side."

The company is pursuing the acquisition of Comsat Corp. and developing a new line of business in global telecommunications, and cannot afford to skimp on research and development in such a cut-throat commercial arena, Nisbet said.

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