HP Remains Committed to Boost R&D, Reduce Takeover Budgets

HP's Chairman: HP Is Fundamentally a Hardware Company

by Anton Shilov
12/07/2011 | 10:30 PM

For a number of years now Hewlett-Packard kept its internal research and development (R&D) budget relatively limited, but at the same time acquired numerous new companies to compensate the lack of technologies. For over a year now the company is attempting to change its strategy and boost its own R&D instead. But while Leo Apotheker, the previous chief executive, failed to accomplish the plan, the board of directors remains very committed to it.


"Over the past five or six years, R&D has been cut back too much. We have got to increase that number. HP Labs has not stopped inventing things, but it may be licensing some of its patents outside of HP. We've got to start looking at HP focusing on nearer term opportunities to take things down to [HP Labs]," said Ray Lane, the chairman of HP, in an interview with InformationWeek.

For the fiscal 2011, HP spent $3.25 billion on R&D, or around 2.6% of its $124.7 revenue. But chief executive officer Leo Apotheker made a number of very expensive acquisitions during the year and the R&D budget was somewhat capped. Yet another former CEO of HP, Mark Hurd, cut HP's R&D budget to $2.8 billion, or 2.5% of HP's revenue, in its last fiscal year from $3.5 billion, or 4% of earnings, in 2005, when he took over as CEO. By contrast, IBM has been investing around 6% of revenue into its own R&D in the recent years.

But not only HP wants to boost its own R&D, its wants to somewhat rebalance the spending so to develop both software and hardware efficiently. The chairman of the company claims that while IBM has transformed itself into a service and software company, whereas Dell remained to be a pure hardware firm. Thus, HP's balanced hardware-software approach seems to be the most competitive and balanced one.

"I do think that we're more of a technology company than Dell and IBM. That is where we went off course slightly in the last year - thinking that we could increase, more rapidly than physically possible, the amount of software we do. HP is fundamentally a hardware company surrounded by software and services," said Mr. Lane.