Despite reduced spending on upgrades and the lower advanced service most cable operators are projecting, equipment manufacturers continue to pour money into research and development, both in terms of total dollars spent and as a percentage of revenues.

Among six equipment vendors that recently released fourth-quarter results, R&D spending represented 22.2% of revenue. That number was higher than the 20% of revenue spent over the course of the whole year. The percentages for the companies ranged from more than 48% to more than 11.1% in the fourth quarter and totaled nearly $200 million.

As in any business with a large technology component, competition for progress is fierce, and vendors must continually spend money to develop new products that will keep revenue flowing.

That's good news for investors, consumers and MSOs alike. Investors should benefit as manufacturers pump out new products and technologies. Consumers will gain access to new and better services, and MSOs will benefit from lower-cost networks that are easier to operate and maintain, as well as from incremental revenue from new services.

The biggest spender by far over the last 12 months has been Broadcom, which plunked down $109.4 million for R&D in the fourth quarter, approaching half its $226.8 million in revenue for the quarter.

That was no anomaly. The company was fairly consistent throughout the year, reporting full-year R&D expenses of $445.2 million, or 46% of sales of $961.8 million Indeed, the fourth quarter was its lowest quarter in terms of real dollars spent, with the second quarter topping out at $116.1 million.

The explanation: Last year Broadcom focused on diversifying its revenue stream. The result was more spending on new products ? both internally and through acquisitions ? that have yet to significantly impact the sales line.

On the flip side is Scientific-Atlanta. Although in 2001 its R&D expenses went up in real dollars and as a percentage of revenue, they remained relatively low at 7.3% of 2001 sales. S-A has been the benefactor of products with a long life cycle, allowing the R&D expense to be spread out over a broader base of revenue covering several years.

Com21 is the only company of six surveyed that dropped R&D spending ? significantly ? from 2000 to 2001. But compared to the averages for the group, Com21's spending is still in line, at 16.3% of fourth-quarter sales.

Com21, however, also experienced the biggest revenue drop among the group ? 37% from 2000 to 2001 ? as demand for cable modems has fallen off. Consequently, the company has had to pay closer attention to expenses.

RESEARCH AND DEVELOPMENT REMAINS HIGH AMONG CABLE VENDORS
(THOUSANDS)

	12 months ended 12/00			12 months ended 12/01			12/01 quarter
company	revenue	r&d	r&d as% of revenue	revenue	r&d	r&d as% of revenue	revenue	r&d	r&d as% of revenue
Broadcom	$1,096,160	$239,841	21.9%	$961,821	$445,205	46.3%	$226,821	$109,399	48.2%
Terayon	339,549	68,270	20.1	279,481	74,093	26.5	80,161	16,942	21.1
Harmonic	263,046	49,315	18.7	203,810	51,319	25.2	56,733	9,872	17.4
Com21	193,983	48,556	25	122,761	24,867	20.3	25,755	4,191	16.3
C-COR.net	287,800	18,133	6.3	198,111	22,910	11.6	67,171	7,624	11.4
Sci-Atlanta	2,222,040	137,872	6.2	2,111,637	154,234	7.3	418,194	46,392	11.1
TOTALS/AVG.	$4,402,578	$561,987	12.8%	$3,877,621	$772,628	20%	$874,835	$194,420	22.2%
SOURCE: KAGAN WORLD MEDIA BASED ON COMPANY DATA

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