HP Chairman Lane Wants Fewer Acquisitions, More R&D Focus

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It's been a drama-filled past several years for Hewlett-Packard, what with all the executive leadership changes, blockbuster acquisitions and strategic starts and stops. With the dust now settling, HP Chairman Ray Lane says the company is charting a course for a more R&D-driven path to innovation.

In a Wednesday appearance on Valley View, CRN sister site InformationWeek's live web TV show, Lane acknowledged that HP in recent years has been using acquisitions, as opposed to R&D, to bring in new technology, citing 3Com, 3PAR, Arcsight and Fortify as examples.

HP's goal in the future will be to rely more on the technologies from its HP Labs R&D unit, according to Lane.

"Over the past five or six years, R&D has been cut back too much," Lane said via Skype at the event. HP spent $3.25 billion on R&D in its recently concluded fiscal 2011, and Lane said he'd like to see at least twice as much revenue, or more, channeled in this direction.

"We've got to increase that number," Lane said. "HP Labs has not stopped inventing things, but it may be licensing some of its patents outside of HP. We've got to start looking at HP focusing on nearer term opportunities to take things down to [HP Labs]."

Asked about the similarities between HP's business model and that of rivals like IBM and Dell, and the fact that they serve many of the same large enterprise customers, Lane said HP's wider breadth of technology focus serves is an important differentiator.

"I do think that we're more of a technology company than Dell and IBM," Lane said.

By way of explanation, Lane said IBM is becoming more synonymous with services and software than it is with hardware, and while Dell has added some services, it hasn't innovated much beyond its traditional purview of PCs and servers. HP, meanwhile, has a much larger hardware business and competes more with Cisco in this area than it does with either Dell or IBM, Lane said.

One of ex-CEO Leo Apotheker's goals was to build HP's software business, and CEO Meg Whitman has pledged to continue these efforts. HP's software business currently accounts for around $4.5 billion in revenue, Lane estimated, but he said future growth shouldn't come at the expense of its hardware business.

"That's where we went off course slightly in the last year -- thinking that we could increase, more rapidly than physically possible, the amount of software we do," Lane said. "HP is fundamentally a hardware company surrounded by software and services."

Lane was also asked for insight into the rationale behind HP's decision, in its now-infamous Aug. 18 third quarter earnings call, to announce it was looking into selling or spinning off its PC-making Personal Systems Group. This came as a major shock to PSG channel partners, who questioned the wisdom of making this information public and bemoaned the chilling impact this revelation had on their sales pipeline.

"You can't simply spin off a division that big without setting it up as a potentially very successful company -- you have to give it assets, you have to make sure it has a board," Lane explained. "So there was no way to do this behind the scenes, and we decided to announce that we would look at it, and evaluate it."

Though it appeared in August that HP might be looking to get out of the low margin PC business in favor of a higher end services approach, Lane insisted that HP never had any intention of jettisoning PSG. HP decided to keep PSG after studying the economics of a spin-off or sale and realizing that it wouldn't make sense financially, Lane said.

"There was never, ever a plan to exit the PC business," Lane said.

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