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HP's R&D spending back to 2008 levels

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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