HP's R&D spending back to 2008 levels

Summary:Three percent of revenue spent on research and development may not sound like a lot, but for HP it's an innovation step in the right direction.

If Hewlett-Packard spends the same amount in the fourth quarter as it did in the third on research and development is should hit the 3 percent of revenue mark, a level not reached since 2008.

Simply put, HP CEO Meg Whitman is backing up her research and development talk with some actual dollars. Now HP's R&D spending isn't going to wow the world---and is half of what IBM spends annually as a percentage of revenue---but the company is taking a small step in the right direction.

HP satisfies Q3 earnings targets; CEO Whitman 'pleased' with progress

For the nine months ended July 31, HP spent $2.57 billion on research and development, or 3.1 percent of revenue. If HP spends $887 million on R&D in the fourth quarter to match the third and meets revenue current revenue estimates, the company should stick at the 3.1 percent of sales R&D ratio.

In nominal terms, HP's R&D spending for fiscal 2014 should be about $3.45 billion or so. R&D last spent that much on R&D in 2008 when revenue was $118 billion. HP is expected to report fiscal 2014 revenue of $111 billion.

To put into perspective they symbolic R&D win of spending 3 percent of revenue on innovation consider recent history via regulatory filings.

  • 2013: 2.8 percent of revenue spend on R&D
  • 2012: 2.8 percent
  • 2011: 2.6 percent
  • 2010: 2.3 percent
  • 2009: 2.5 percent
  • 2008: 3 percent
  • 2007: 3.5 percent
  • 2006: 3.9 percent

Whitman said she was committed to R&D and preferred it over mergers and acquisitions:

With regard to M&A, now that we have repaired the balance sheet -- as I have said before, I do think M&A will be a part of our strategy, but let me assure you this will be returns-based. It will be focused on only things that we cannot do organically. Given the choice, I would rather invest organically. This is the heritage of Hewlett-Packard. We do core R&D better than anyone else.

Add it up and I'm left to conclude that maybe the coast is clear to actually believe that HP is putting some money into R&D. Until now, the R&D talk wasn't backed up by actual spending.

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Topics: CXO, Hardware, Hewlett-Packard, Innovation

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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