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8/19/2009
07:22 AM
Bob Evans
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HP Slashes R&D Spending By $228 Million

Hewlett-Packard cut Q3 R&D spending by 25.5%, or $228 million, on a year-on-year basis, and by 6.9% when compared to the previous quarter. While pulling back on R&D, which many companies have done over the past year, is not necessarily a bad thing, HP is betting big that a new open-innovation approach will compensate for the big cuts in traditional R&D.

Hewlett-Packard cut Q3 R&D spending by 25.5%, or $228 million, on a year-on-year basis, and by 6.9% when compared to the previous quarter. While pulling back on R&D, which many companies have done over the past year, is not necessarily a bad thing, HP is betting big that a new open-innovation approach will compensate for the big cuts in traditional R&D.A year ago, for the three months ended July 31, 2008, HP spent $895 million on R&D, but for the same period this year that number was cut to $667 million, according to HP's third-quarter results released yesterday.

And for the previous quarter this year, HP spent $716 million on R&D, or $49 million more than it chose to spend in the three months just ended.

While some of those cuts were no doubt due to the across-the-board cost-control measures undertaken in the past year by HP CEO Mark Hurd, at least part of the reductions could be due to a new open-innovation model that the company has been pursuing under its new senior VP for research, Prith Banerjee. Here's how the New York Times described the new HP effort:

Under Mr. Banerjee, former dean of engineering at the University of Illinois at Chicago, H.P. Labs has not only narrowed its focus, placing larger bets on fewer projects, but has also systematically sought outside ideas.

H.P. now runs a yearly online contest, soliciting grant proposals from universities worldwide. The company lists eight fields in which it is seeking advanced research, and scientists suggest research projects in those fields. The H.P. grants are typically about $75,000 a year, and many of the collaborative projects are intended to last three years... "We are tapping the collective intelligence, selectively, of leading academics around the world," Mr. Banerjee said.

Alan E. Willner, an electrical engineer at the University of Southern California, is one of those academics. He is an expert in photonics, using light photons instead of electrons to transmit information. The goal of the project with H.P. is to cut power consumption and increase data-transmission speeds between computers in data centers, and eventually even inside of chips.

The H.P. project, he said, supports a research student, provides insights from H.P. scientists and has helped double the productivity of his research team, whose members have co-authored 21 conference and journal papers related to the project in the last year.

It's an intriguing concept - "crowdsourcing" is the current buzzterm - and clearly offers many current and potential advantages to HP, which has built its global brand in large part on a reputation for product excellence and R&D sophistication.

But in these days of rapidly changing product configurations, dynamic changes in key underlying technologies, and HP's own aggressive expansion into new fields such as networking, the company will need to be sharper than ever before in exploring new technological possibilities and turning some rapidly into tomorrow's products.

The reduced internal R&D investments and the parallel reliance on the open model represent a massive bet for HP. Then again, in the current economic climate and as the world's largest IT company, HP doesn't really have any other choice, does it?

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