Wolfe's Den: Recession Or Bust, R&D Spend HP Must

Research means different things to different companies. For Apple, it's its lifeblood. Microsoft's lab cranks code. At Intel, R&D is in the DNA. So what is it at HP, where Q3 R&D spending was recently slashed by $228 million?

Alexander Wolfe, Contributor

August 19, 2009

3 Min Read

Apple

Apple clocks in at $1.11 billion on R&D for its 2008 fiscal year. For the nine months ending June 27,2009 it spent $975 million. That’s up from the $811 million of the year-earlier period. (Note that Apple is a smaller overall company than these other guys. It had FY2008 revenues of $32.5 billion, compared to $38 billion for Intel, $60 billion for Microsoft, and $118 billion for HP.)

HP spent $3.543 billion in FY2008. So far this fiscal year, the figure is $2.115 billion for the nine months ending July 31, 2009. (This compares to $2.701 billion for the comparable year-earlier period).

Bang For the Buck

From the above figures, we see that HP is no slouch, and certainly isn’t out of line with the others. Here's where the rubber meets the road, though -- it's my argument about what each company gets for its money.

I'd say it's clear that Apple -- which at $1.1 billion in annual R&D spending -- is most effective at applying its research dollars.

Microsoft has a healthy Labs operation, but my top-level observations are a) it probably doesn't get a whole lot of productization out of the money it pumps into research and b) a lot of mainline product development costs (like paving the way for Windows 7) are probably buried within its R&D budget.

With Intel, my bias toward admiration for the company's integrated financial controls lead me to believe that its research is more holistically connected to the rest of its operation than with any other company. Everything at Intel follows a waterfall model, whether you're talking amortization of its semiconductor manufacturing facilities or the path by which hi-k metal chip technology makes its way from the research team into actual Core i7 microprocessors.

Thus, to consider R&D at Intel as some kind of nice-to-have adjunct is incorrect. It's a key part of the business. (Note as differential confirmation of this the higher percentage of its revenue that Intel spends on R&D, as compared to the other companies I'm discussing.)

This is likely not the case at HP. I don't mean it as a slam when I say that, in recent years, the company has been more effective at monetizing ink than it has at productizing innovation. Which is not to say that HP doesn't have an illustrious history.

If you go to HP Lab's fortieth anniversary page, you'll find a list of "40 innovations that counted." The list includes the first commercially available LED, in 1966, the first programmable calculator, in 1968, RISC; PC graphics, digital photography, and more. A list of recent innovations includes self-aligned imprint lithography and the memristor.

All worthy stuff, and it'd be ignorant to quibble over the fact that you actually have to know electronic to understand this stuff. But clearly there's some meat on the bones of HP's research budget, which is an easy mark for HP CEO Hurd to trim.

For Further Reading

Wolfe's Den: Windows 7 Deep Dive;

Microsoft Tops IBM And Oracle On R&D Spending -- Combined.

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