While R&D spending has increased steadily in the pharmaceutical and biotech sector, the trend has been much more volatile in the technology hardware and equipment sector, which includes computer, semiconductor, and telecommunications equipment firms. Its research funding hit bottom in 2003, then rose 8.1 percent in 2004, to nearly $65 billion. Yet that above-average gain couldn't make up ground lost following the dot-com and telecom busts, which is why technology hardware and equipment is the only major sector to lose ground since 2000, with a 9 percent drop in R&D spending over the five-year span.

That drop is all the more remarkable for having come at a time of a recovery in sales, which are now back to 2000 levels. The technology sector, which boasted 11 firms in the top 25 in 2000, had only 6 in 2004. As a result, its share of the Top 100 spending fell from 34 percent in 2000 to 25 percent in 2004. Its R&D intensity dropped 9 percent from 2000 to 2004.

The composition of the R&D leaders within the sector has also changed markedly. The top four spenders in 2000 were all telecommunications companies: Ericsson, Lucent, Motorola, and Nortel together accounted for nearly $20 billion. By 2004, these four had chopped spending to just $9 billion. Canadian-based Nortel Networks Corp. and U.S.-based Lucent Technologies Inc. each spent more than $5 billion in 2000. Four years later, Nortel spent just below $2 billion, and Lucent was all the way down to $1.3 billion. Lucent, parent company of the once-venerable Bell Labs, continued its free fall from No. 6 in the overall 100 to No. 71, after cutting R&D spending five years in a row.

In 2004, Sweden's Telefonaktiebolaget LM Ericsson slashed R&D by 23 percent, or $873 million, and the U.S. firm Motorola Inc. cut back by nearly 19 percent, or $711 million. Finnish rival Nokia Corp. nearly held R&D spending stable, slipping less than 1 percent. In fact, the only telecom firm to make it into the sector's top four was Nokia, a company in the middle of the pack in 2000.

The sector's semiconductor firms, led by South Korea's Samsung Electronics Co. and Switzerland's STMicroelectronics NV, increased spending. The single exception was Motorola spin-off Freescale Semiconductor Inc., which reduced spending by about 4 percent. Samsung went on a spree in 2004, increasing R&D spending by nearly 36 percent, or more than $1 billion, to leap to No. 16 on this year's list. The company's R&D spending has now topped $4.5 billion, just behind industry leader Intel, at $4.8 billion.

The automobiles and components sector captured the top three spots and four of the top five and took the second-largest share of the Top 100, at 24 percent. Its R&D spending for the past five years kept pace with sales, up 48 percent over the same period.

The rise of Toyota Motor Corp. has been the sector's major story. The Japanese carmaker rose from No. 11 in 2000, when the company spent $4.3 billion, to No. 3 in 2004, when it spent $7 billion. In 2004, Toyota increased its spending by 10.7 percent and General Motors Corp. raised its spending by 14 percent, but the sector as a whole continues to have a below-average R&D intensity at 4.4 percent, virtually unchanged from 2000. Ford Motor Co., the 2004 R&D 100's No. 1 spender, backed into the top spot by decreasing spending by 1.3 percent.

Automakers face an uncertain near-term outlook because of pressures from an increasing cost structure and the need to achieve shorter product life cycles to meet rapidly changing consumer preferences. Rising production costs are being driven by higher commodity prices and higher borrowing costs. For example, Ford and General Motors both had their bond ratings downgraded to below investment grade earlier this year. The pressure to cut costs could lower R&D spending, but the urge to radically slash R&D budgets may be tempered by the need to invest in new model designs to maintain market shares.

Like the auto industry, capital goods also had relatively low R&D intensity, just 4.5 percent, up from 4.3 percent in 2000. Its mix of companies—from aerospace giants European Aeronautic Defense and Space Co. (EADS) in the Netherlands and Boeing Co. in the United States to conglomerates like Siemens and 3M Co.—raised spending a robust 16.1 percent over 2003, almost twice as much as the increase in sales growth. Caterpillar, the earth-moving machinery and agricultural equipment maker, moved up to No. 90, after being out in some recent years. It increased R&D spending by nearly 39 percent. On the downside, Mitsubishi Electric Corp. cut spending by a whopping 24 percent, or $401 million, as sales dropped by more than $3 billion.