Another Upbeat Year Ahead For R&D Marc S. Reisch C&EN Northeast News Bureau
C
hemical producers based in the U.S. are counting on the recovery in pricing and profitability they ex perienced in the second half of 1999 to continue into 2000. And as a result, many are increasing their contribution to R&D. They expect R&D will help them boost profitability through the de velopment of new and improved prod ucts or lower costs through process im provement discoveries. C&EN's survey of 19 major chemical producers shows that they collectively plan a 2.6% increase in R&D to $5.1 bil lion this year compared with the 1999 total. Three companies account for a whopping 70.1%, or nearly $3.6 billion, of total R&D among the group of 19: Dow Chemical, DuPont, and 3M. These
three industry giants collectively plan a 3.3% R&D increase this year compared with 1999. In 1999, the group of 19 increased ex penditures a substantial 11% compared with 1998 to a total of nearly $4.98 bil lion. The three largest spenders, led by DuPont, plunked down just a tad under 70% of the total and collectively in creased their expenditures by 10.7% compared with the year earlier. To be fair, acquisitions and portfolio rearrangements by three companies also swelled the 1999 data reported in this year's review. Beginning with 1999, Crompton & Knowles, now CK Witco, in cludes R&D data for businesses it ac quired in a merger with Witco in 1999. DuPont's R&D expenditures were en larged not only through the consolida tion of the DuPont Merck Pharmaceuti cal joint venture in 1998, but also through
portfolio rearrangements in 1999 that in cluded acquisition of seed producer Pio neer HiBred and the purchase of the Hoechst paint and coatings operations known as Herberts. And Hercules' 1999 R&D data include BetzDearborn, which was acquired late in 1998. If CK Witco, Du Pont, and Hercules were subtracted from the group, R&D for the remaining 16 com panies would have increased a more mod est 4%—more in keeping with the 3.8% in crease reported in last year's review of major chemical company R&D spend ing plans for 1999 (C&EN, Feb. 8,1999, page 22). Industry upheavals constantly change the makeup of C&EN's annual R&D sur vey. Thus, Morton and Witco no longer appear in the table of surveyed produc ers because they were acquired late last year by Rohm and Haas and Crompton & Knowles, respectively. French utility Suez Lyonnaise acquired Nalco Chemi cal, accounting for the latter's absence from this year's review. Olin also no longer appears because it spun off Arch Chemicals last year and chemicals now make up only a comparatively small por tion of its portfolio of businesses.
Major chemical producers slate modest rise in 2000 R&D spending 1995
1996
1997
1998
Planned 1999a
97 28 49 12 40
$ 103 30 59 14 44
$ 114 30 80 52 40
$ 114 31 83 54 45
$ 112 30 83 53 43
$ 123 30 80 53 43
$ 123 34 73 108 44
$ 120 28 66 105 44
1,261 1,047 167 50 23
808 1,067 176 55 23
761 1,032 184 47 24
785 1,116 191 42 27
807 1,308 185 40 29
852 1,600 187 40 27
845 1,600 184 40 31
880 1,600 160 43 33
59 132 65 20
63 121 59 22
64 94 56 25
42 84 53 27
42 47 61 26
46 45 60 29
48 45 85 24
91
105
93
88
78
75
218 201 nm 1,054
236 194 nm 883
239 187 nm 947
266 201 60 1,002
255 207 60 1,016
300 212 64 1,000
$4,614 0.4%
$4,062 -12.0%
$4,069 0.2%
$4,311 4.5%
$4,482 4.0%
$ Millions
1994 9
Air Products Albemarle Cabot9 CK Witcoh Cytec Industries Dow Chemical' DuPont1 Eastman Chemical Ethyl Ferro Great Lakes Chemical W.R. Gracek Hercules' International Specialty Products Lubrizol PPG Industries Rohm and Haasm Solutian 3M TOTAL ANNUAL CHANGE0
$
Actual 1999b
Planned 2000c
R&D spending as % of sales
% change 1998-99d
1999-00e
1998
1999'
-2.4% -17.6 -9.6 -2.8 0
2.3% 3.7 4.8 3.0 3.0
2.5% 4.0 4.3 3.1 3.1
4.7 22.3 -0.5 0 6.9
4.1 0 -13.0 7.5 0
4.4 5.3 4.1 4.1 2.1
4.5 6.3 4.2 4.0 2.3
48 45 90 27
14.3 -4.3 39.3 -7.7
0 0 5.9 12.5
3.0 3.2 2.8 3.2
3.3 3.0 2.6 2.8
77
82
-1.3
6.5
4.8
4.6
295 236 64 1,020
303 260 70 1,100
15.7 14.0 6.7 0.4
2.7 10.2 9.4 7.8
3.4 5.6 2.1 6.8
3.8 4.4 2.2 6.5
$4,976 11.0%
$5,104 2.6%
4.6%
4.8%
9.8% 13.3 -12.0 103.8 2.3
a December 1998-January 1999 estimate, b December 1999-January 2000 estimate, c Budget for 2000. d From 1998 actual to December 1999-January 2000 estimate. e From December 1999-Oanuary 2000 estimate to 2000 budget, f December 1999-January 2000 estimate as a percentage of estimated 2000 sales, g Fiscal year ends Sept. 30. h Data for 1999 include Crompton & Knowles' acquisition of Witco on Sept. 1, 1999. i Figures for 1995 and after do not include Marion Merrell Dow drug operations sold to Hoechst in 1995. j Excludes Conoco, k Merged packaging business with Sealed Air Corp. in March 1998. I Figures for actual 1999 and after include BetzDearborn, acquired in October 1998. m Figures reflect acquisition of Lea Ronal in January 1999 and Morton International on June 21, 1999. η Spun off from Monsanto in 1997. ο For reporting companies, nm = not meaningful.
FEBRUARY 7, 2000 C&EN
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business The table will likely change again a year from now when C&EN surveys maR&D spending is on the . . . and will slip slightly jor chemical companies for their 2001 upswing . . . as a percentage of sales R&D plans. Union Carbide, which has appeared in this survey in prior years, $ Billions 6 will likely appear again, but its plans 61 for 2001 will be included with those of Dow Chemical, with which it plans to merge in the second half of this year. 5 $ Current Praxair, a participant in last year's survey of 1999 R&D plans, may again re5 spond to queries and provide a 2001 4 budget number. The year 2000 is the fourth year in a $ Constant 1990 row that chemical producers surveyed A 3 have increased R&D spending follow1990 91 92 93 94 95 96 97 98 99 00 1990 91 92 93 94 95 96 97 98 99 00 ing the sharp pullback in 1995, when Note: For 17 chemical producers listed on page 33. Excludes International Specialty Products and Solutia because 10 years of data are not available. Sources: C&EN surveys and estimates, National Science Foundation R&D budgets slipped collectively 12% for the group. Spending levels are also at their highest for the group of 19, up 10.6% compared with 1994 and growing the group in 1995. A few companies, In its latest data, CMA discovered at an annual average rate of 1.7%. In con- Dow and DuPont in particular, have de- that, in 1999, chemical companies constant-dollar terms, R&D spending will voted time and effort to develop promis- tinued to devote an increasing share of likely rise 1.5% in 2000, says Jules Duga, ing life sciences businesses. The two their R&D dollars to the development senior analyst at Battelle Memorial In- bring up the average of R&D spending side. Though the percentage shifts are stitute, Columbus, Ohio. As a result, for as a percent of sales for the group, as small, they are nonetheless indicative of this year, the projected actual R&D does the diversified manufacturer 3M, longer term trends. Development spending of the chemical producers which has an almost fanatical devotion spending for the industry rose from C&EN surveyed will increase just 1.1%. to bottom-line-oriented R&D. 51.5% in 1998 to 56.1% of total expendiOver the past 10 years, actual R&D According to a recent Chemical Man- tures in 1999, according to CMA. Basic investments have declined for a group ufacturers Association (CMA) analysis research's share of funding slipped of 17 chemical companies out of the 19 of the industry, innovation continues to from 10.5% in 1998 to 9.6% of the total in companies surveyed this year. Interna- be a hallmark of the business of chemis- 1999. And even applied research detional Specialty Products and Solutia try. CMA's Policy, Economics & Risk clined as a share of total R&D funding in are not included because 10 years of Analysis Group points out that, because 1999, falling to 34.3% versus 38% in 1998. data are not available. The 17 compa- of the "highly technical and rapidly A spokesman for PPG Industries, for nies plan to invest 12% less in constant changing innovative nature" of the instance, points out that the company fodollars in 2000 than they did in 1990. chemical industry and its products, "in- cuses on product and process research Inflation undermined the purchasing novation, R&D, and technical services and not on "blue sky" research. power of the dollar, knocking out 23.9% provided to customers are increasingly Even where company plans call for a of its value over the 10-year period, ac- important factors in maintaining com- reduction in total R&D expenditures, cording to National Science Foundation petitiveness." As CMA sees it, that the push is still on to put resources and Battelle Memorial Institute esti- means the industry will continue to au- where they will have an impact. Eastmates. In current dollars, the group's tomate its processes where possible and man Chemical plans a 13% overall drop spending increased 8.9% between 1990 reduce the number of its production in funds devoted to R&D in 2000, but and 2000. workers. However, the industry will still some Eastman businesses will actually For the group of 19 companies in need technical, R&D, and other white- receive increased R&D funding even as 2000, 10 plan to increase their R&D collar workers who will make up an in- resources for others are reduced, a spending from 1999, four intend to hold creasingly larger percentage of the in- spokeswoman says. spending level with 1999, and five plan dustry's workforce. So, although the greater number of to spend less. By comparison, 13 comCMA's survey of the industry shows those surveyed intend to increase R&D panies increased their R&D spending in R&D spending increased about 4.8% in funding overall, even those planning 1999 from the previous year, one held 1999 to an industry total of $20.5 billion. overall cutbacks intend to put scarce respending at the same level, and five The percent increase for 1999 is not too sources where they will do the most spent less. far off C&EN's survey result of a 4% in- good. Chemical industry R&D is still C&EN projects that R&D spending crease (not including data from DuPont, more likely to drive process developas a percentage of sales for the group of Hercules, and CK Witco). For 2000, ment and product improvement than it 19 major chemical companies will be CMA expects R&D spending to in- is to fund the discovery of brand-new, 4.7% in 2000, off slightly from 4.8% in crease 2%, with total chemical industry never-seen-before chemical entities. In 1999. Though not as high as the 1993 R&D outlays reaching $20.9 billion. the end, corporate R&D is about beatlevel of 5.5% for the group, the percent- CMA's expected 2% gain for 2000 com- ing the competition and extending existage of sales devoted to R&D has been pares favorably with C&EN's survey es- ing product lines with an eye to improving the bottom line.^ on the rise since it hit a low of 4.2% for timate of 2.6%. D/M^nnt
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FEBRUARY 7, 2000 C&EN
