The Rising Cost of Semiconductor R&D

R&D investment is clearly critical to the continued success of semiconductor innovation; the extraordinary costs that are associated with creating semiconductors mean more money must be invested to try to find the solutions that will result in efficiency gains and therefore cost savings in future semiconductor products. 

It is estimated that, despite the pandemic and severe cutbacks in spending, R&D spending by semiconductor companies will rise by 5% in year 2021 when compared to year 2020. The reason for this is undoubtedly the need to stay ahead of the increased competition that China’s drive for self-sufficiency has created, but also the fact that to achieve the gains that Moore’s Law predicted, the number of researchers it takes is 18 times greater than the number in the 1970’s.

And with this growing requirement for more manpower comes corresponding associated costs. Building a semiconductor fabrication facility alone is estimated to cost between $15 billion (USD) to $20 billion (USD), with reports estimating that there are only eight semiconductor companies currently able to afford such a cost. And as features of semiconductors continue to shrink in size, the costs balloon at an astonishing rate. The jump in R&D costs from improving a 10nm minimum feature sizes on chips to 7nm minimum feature sizes on chips is $100 million (USD), and then from 7nm to 5nm minimum feature sizes on chips is $550 million (USD) – this is before manufacturing, testing and packaging costs have even been factored in.

With demand for chips skyrocketing during the pandemic, the incentive to keep investing and innovating is undoubtedly there. So perhaps R&D spending is not under immediate threat. But problems will arise if supply chain bottlenecks and global tensions continue to persist and result in shortages of chips, which will lead to decreases in revenue and consequently, R&D budgets could be compromised as firms look to make cost savings to an already costly process.

This was an extract from Aalbun's latest white paper – Semiconductors: Innovation and Intellectual Property Rights. To read the full white paper, click here.

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