By Matthew Nordon, Lux Research

Since the first Intel 4004 rolled off the assembly line in 1971, a wave of information technology innovation has created trillions of dollars in economic value (IDC calculates 2006 IT spending at $1.6 trillion) and altered the structure of business and society. The production of the first commercial single-chip microprocessor was a triumph of physical sciences innovation, synthesizing advances in materials deposition, lithography, and electrical engineering that relied on core principles from chemistry, optics, and physics—many of which were born in enormous corporate research labs like AT&T’s Bell Labs facility and IBM’s East Fishkill campus.

The physical sciences advances that culminated in the microprocessor sparked a secondary wave of software and process innovation that dominated business from the 1980s through the end of the century. New product categories such as enterprise software enabled corporations to radically reduce costs through enterprise resource planning and supply chain management. The Internet enabled companies to connect with consumers in new ways and to eliminate trading frictions. The result: Many companies that had once staked their future on science-driven innovation increasingly considered themselves services companies whose research labs represented costly overhead. In the late 1990s. Not only did IBM reinvent itself as a software and services company rather than a computing equipment manufacturer; but, Eastman Chemical sought to reinvent itself as a supply chain intermediary for the chemicals industry.

In 2007—more than a quarter-century on from the 4004—the innovation landscape looks very different. Science-driven innovation is resurgent—for example, after years of refocused R&D IBM is now shifting its resources into new physical sciences areas like photovoltaics and water purification. Further, companies’ approaches to innovation have shifted from monolithic internal R&D operations to networked or “open innovation” strategies that seek to source half or more of new technologies from outside start-ups, academic institutions, and government labs. Observe:

• Open innovation rampant. It’s difficult to find a large corporation with major physical sciences R&D that hasn’t set up an “open innovation,” “technology sensing,” or “environmental monitoring” unit. Part of Intel’s Technology Monitoring Group serves this function coupled with its massive Intel Capital corporate VC fund; Motorola has made a major commitment to open innovation with an internal working group bearing the title; and, even Asian stalwarts like Samsung Electronics have large-scale teams dedicated to assessing and sourcing external technologies.
• Physical sciences patents outpacing total patents. Issued U.S. patents in the physical sciences grew at an 11% CAGR from 1997 through 2006 compared with 5% for patents overall. Electronics companies with a sole focus on IP, from established firms like Rambus to new innovators like Nantero, proliferate.
• Venture capital embracing physical sciences innovation. Venture capital deployed into the physical sciences has grown with a jaw-dropping 43% CAGR from 1996 through 2007 compared with 8% for venture capital overall. Fields previously considered unable to be invested in by VCs now sport large rounds, like energy storage with over $1 billion in VC spending during the last three years.
• Science and engineering employment growth exceeding total employment. According to U.S. government statistics, science and engineering jobs grew at a 3.6% CAGR from 1996 through 2007 compared with 1.1% for jobs overall.

The third annual Lux Executive Summit conference, hosted in Cambridge, MA this October 15-16, is a highly regarded forum for networking with the leaders in science-driven innovation. Keynoted by luminaries like Sun Microsystems Co-founder and current Kleiner Perkins Partner Bill Joy, Sycamore Networks Founder and A123 Systems Chairman Desh Deshpande, and Nobel Laureate Physicist Bob Laughlin, the event focuses on three “hot spots” where science meets business:

• Nanotechnology—including semiconductor equipment and materials opportunities in logic, memory, displays, sensors, and medical devices
• Cleantech—including semiconductor equipment and materials opportunities in solar cells, energy storage, power distribution, and energy consumption management
• Post-silicon electronics–spanning the gamut from flexible organic electronics to carbon nanotube and spintronic devices

The updated 2007 Lux Executive Summit agenda, including more than 35 speakers from leading innovation companies, has been posted to the event’s website. For registration and additional event details, please visit www.luxexecutivesummit.com.. SEMI members use registration code “SEMI” to receive a $400 discount.

For more information on speaker and sponsorship opportunities, contact Stephen McDermott at stephen.mcdermott@luxresearchinc.com.