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While this plan seemed sound enough in theory, a new study has suggested that it might have been exactly the wrong thing to do.
The data sleuths over at Research have just issued a sizzling report with the title “Do High R&D Spenders in Tech Generate Stock Outperformance?” Even if it’s not the sexiest title, the conclusion is titillating. Bernstein examined technology companies since 1977 to measure R&D spending as a percentage of the company’s sales. The researchers found that over 1-, 3-, 5-, and 10-year periods, the companies with the lowest spending on R&D tended to perform the best on . It really is just like said: “ is 10 percent inspiration and 90 percent a waste of everyone’s time.”
Bernstein divided the technology companies into High, , and Low R&D spenders. Roughly speaking, the high group tended to spend 18 percent to 35 percent of revenue on R&D; the medium group spent 11 percent to 17 percent; and the low group 10 percent or less. Members of the high-spending group tended to be heavy on hardware companies with names such as (NVDA) and (INTC), the middle range encompassed big names like Google (GOOG) and Microsoft (MSFT), and the low-end group included HP, (IBM), and (AAPL). Some companies changed groups depending on which time period Bernstein examined.
If we focus on results from the past five years, the biggest R&D spenders underperformed the other technology companies by 15 percent on average when it came to gains in share price. The middle R&D spenders outperformed the rest of the companies by 23 percent on average, while the lowest spenders outperformed the rest by 19 percent. And the majority of the low spenders—63 percent—outperformed their peers; from the middle and high spenders, only 43 percent and 40 percent, respectively, bested their peers.