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High-tech companies focus their R&D spending

18 марта 2008

Place fewer, bigger bets. That is the conclusion that technology companies slugging it out in some of the most fiercely competitive parts of the industry have reached as they grapple with two conflicting pressures: how to boost profit margins, while investing in the new technologies necessary to fuel future growth.

Hewlett-Packard and IBM – the world’s two biggest IT groups by revenues – each increased their research and development budgets by less than 1 per cent last year, while rival Sun Microsystems trimmed its spending, reflecting pressures on the big systems-makers to focus attention on the parts of their broad technology portfolios with the biggest potential.

A Financial Times analysis shows a similar trend among all but a handful of the biggest US technology groups last year. For many corporate R&D departments, the increased pressure to maintain sales growth while preserving profitability has meant a realignment of research priorities.

John Kelly, IBM’s new head of research, has tried to refocus Big Blue’s efforts around some of the tech markets with the biggest long-term potential. He has singled out four areas where IBM will place its biggest bets, including cloud computing – pooled computing resources – and the new systems to boost corporate compliance and data security.

IBM said that Mr Kelly’s new focus would not lead to big cutbacks in research efforts elsewhere. However, the company has already redirected its R&D budget to try to cut spending on areas that are not expected to yield big returns or competitive advantages.

HP last week unveiled a new focus at HP Labs, its basic research arm, pledging to move from funding 150 smaller projects to 20-30 bigger projects as it attempts to sharpen its research efforts.

Like IBM, HP’s plans focus on a handful of broad research themes, including cloud computing and sustainability. The goal is to integrate cutting-edge work done at HP labs more closely with the company’s business groups, which account for the majority its $3.6bn in annual R&D spending.

Prith Banerjee, the HP Labs director, says: “If you have limited resources, having a ‘let 1,000 flowers bloom’ approach doesn’t give enough resources to any one idea”.

Sun, the systems company that was hardest hit by the industry downturn at the start of this decade, has held its research budget flat at around $2bn for a number of years. It was forced effectively to hand development of its Sparc processor to partner Fujitsu as it looked for ways to narrow its focus on the technologies it felt had the most potential.

Some research executives cautioned that the slow growth in R&D spending has been exaggerated by the shift in emphasis towards more profitable services by many IT companies.

Sophie Vandebroek, chief technology officer at Xerox, the documents company, says: “Supporting services from an R&D cost point of view is much less expensive than developing [hardware]”.

Longer term, there may be plenty of incentive for tech companies to maintain their R&D spending, even in difficult times. According to research by Sanford C Bernstein, companies that boost R&D as a percentage of their sales over a five-year period tend to be rewarded with higher profit margins and share prices in later years.

The message, says Bernstein analyst Richard Keiser, is: “Management tends to be a better judge of R&D spending than the market is.”

Yet with Wall Street getting increasingly anxious about a possible downturn, the pressure will inevitably mount to start cutting back.

Источник: Financial Times

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