HP CTO: Merger-driven R&D will generate profits

HP CTO: Merger-driven R&D will generate profits

With the digestion of Compaq complete, the nutritional benefits that Hewlett-Packard (HP) promised would result from the acquisition are starting to become apparent, said Shane Robison, HP's chief technology officer, in an interview Monday.

Robison directs HP's strategy for investing time and money in technologies. Software and services are the two businesses that will drive most of HP's growth in the next few years, but the company is still committed to its hardware businesses, he said.

HP's research and development (R&D) activities will help it compete in a stratifying hardware market, Robison said. The company plans to focus on building premium technologies into its PCs, printers and handheld devices that will stimulate demand while allowing HP to set higher prices for its products, he said.

The company's combination of strong technology development that appeals to consumers with the enormous breadth of HP's product offerings will allow it to turn those technologies into profits at higher margins than either HP or Compaq could have done on their own, Robison said.

Robison turned to the Pavilion dv1000 notebook for an example of this premium technology. He recently purchased one of the units for his wife, partially because of the HP Quick Play software that allows the user to watch a DVD or play a CD without having to go through the full boot-up process.

"People will pay more for these technologies," which will make PCs with that software more profitable, Robison said.

Critics of HP's acquisition of Compaq, completed in 2002, point to the weak profit margins of the PC business as a reason why the two companies never should have joined forces.

While everyone understands that PC profits are not going to be the same as those of software or services companies, HP believes its research and development strength can help it compete for market share with Dell while boosting profitability with premium technologies, Robison said.

Dell has developed a reputation as a lean company obsessed with reducing cost and complexity in the manufacturing process. Dell Chief Executive Officer Kevin Rollins openly dismissed the idea of emphasizing research and development in the IT industry in an interview last year, arguing that companies such as HP, IBM and Sun Microsystems develop a great deal of technology that never translates into profits.

In the enterprise hardware market, another area where HP has struggled to maintain consistent profits, blade servers and virtualization technologies are examples of where research and development has translated into high-margin products, Robison said.

"Both (blades and virtualization) require R&D, and both have such an improvement on productivity that businesses are willing to pay," Robison said. "You've got to be willing to innovate in an industry-standard world."

While financial analysts may disagree as to the success of HP's Compaq purchase to this point, Robison argued that consolidation was inevitable to ensure the success of either company.

"This is a consolidating industry," Robison said, referring to the IT industry at large and the recent pairings of companies such as Oracle and PeopleSoft, as well as SBC Communications Inc. and AT&T. "It was important for both companies to get out in front of that," he said.

"Now it's about leverage. Anyone in the industry would acknowledge that we have a pretty amazing portfolio. But we have to continue to innovate at the platform level in ways that no one else can," Robison said.

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