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November 29, 2010

Apotheker signals post-Hurd atmosphere at HP by upping R&D

Recently signed HP CEO Leo Apotheker has told Wall St he plans to up research and development spend at the organisation


HP boss Leo Apotheker

The move signposts a clear break from the Mark Hurd era, as the firm released strong end of year numbers last week.

He’s even gone so far as to say he’ll work on a new "secret sauce" that will make its consumer technology better serve business buyers as well as provide more "compelling" software. Transferring consumer innovations to business products will provide "an enormous competitive advantage," he said.

It must at this point be pointed out that Apotheker can’t claim that much credit for the strong year – as he’s only been in post three weeks, apparently in Business Class for most of it any-hoo. So let’s take a moment here to congratulate the tough cost-cutting regime of Hurd, who was leading the firm for the overwhelming bulk of this time.

In any case, the New Guy told financial analysts he won’t end any time soon his predecessor’s cost containment moves even if he does end up spending more money to develop and sell the firm’s technology. Spending increases in R&D and sales will be funded by cutting other operational costs, Apotheker announced, confirming that, "We will never stop driving for efficiency," he said.

Indeed, spend more he clearly will, as he also said on the concall that HP will continue to make acquisitions, especially in the software market, and he wants to work on upping sales in emerging markets too. (The market and shareholders are waiting for more details on how and when HP’s investments will turn into viable products, it has to be said.)

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Apotheker made the remarks in the context of end of year profits that were bigger than analysts’ estimates – and as a result of that and his remarks, its stock, which had dropped 16% since January, 7% since its last CEO Mark Hurd was ousted in August, has started climbing again.

Hurd had cut R&D from the pre-2005 average of 4.1% to more like 2.4% before he quit. But in its fourth quarter, HP’s R&D had already been up, again by 16%, to $814m, from a year earlier.

Apotheker seems determined to re-motivate HP staff – as he will bring back in at least some salary raises in the current fiscal year.

HP expects fiscal 2011 sales will hit between $32bn to $33.5bn. Its 2010 figures, meanwhile, show a strengthening corporate market balancing (more or less) a softening consumer one, on yearly revenue of $33.3bn, up from $30.8bn.

All in all, Apotheker has been very busy since he was appointed trying to connect with HP employees, customers and industry partners as another sign of his New Broom attempt, and there was the inevitable joke in the call about setting world travel records as a result.

We’ll have to see if all those frequent flyer miles translate into a truly re-energised Hewlett Packard. But it would be nice – and if it Apotheker can make it getting back to Inventing again, good, we think, for the ICT market as a whole, too.

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