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HP's Changing Business Face

HP released its 2009 Q3 results yesterday. The numbers show some continuing trends that show how much the company is changing its traditional business model.

For example, one thing I've been tracking here at BNET is the continuing reduction in the company's R&D spending. Historically known as a company run by engineers, there is a trend of less spending in research, both in absolute dollars and in spending as a percentage of revenue (and note that I'm translating numbers into calendar quarters from fiscal year quarters):

Here's a graph of R&D spending in dollars:

And here's a graph of R&D spending as a percentage of revenue:

You don't need esoteric mathematics to see the trend line. HP is focusing fewer resources on research and development. As you look at how its various lines of business have changed, at least on a year-over-year basis, the possible reason becomes clear:

  • Services -- up 93 percent (largely due to EDS acquisition)
  • Enterprise Storage and Servers -- down 23 percent
  • HP Software -- down 22 percent
  • Personal Systems Group -- revenue down 18 percent, units up 2 percent
  • Imaging and Printing -- down 20 percent
  • Financial Services -- down 1 percent
HP is clearly moving in the services direction, much as IBM did. (Interestingly enough, IBM's R&D spend for the first six months of 2009 was down 9.8 percent from that of 2008.)

As I mentioned earlier this month, HP's imaging and printing group has been pursuing a managed services strategy. I wouldn't be surprised if other groups followed if they can, trying to find broad areas of service made possible by HP being a manufacturer. It's another implication of the continuing drop in hardware prices. After all, if hardware wants to be free, manufacturers had better figure out other ways to make money.

Abacus image via stock.xchng user catwoman1, site standard license.