HP 2006 Annual Report Download - page 14

Research and Development
We remain committed to innovation as a key element of HP’s culture. Our development efforts
are focused on designing and developing products, services and solutions that anticipate customers’
changing needs and desires and emerging technological trends. Our efforts also are focused on
identifying the areas where we believe we can make a unique contribution and the areas where
partnering with other leading technology companies will leverage our cost structure and maximize our
customers’ experiences.
HP Labs, together with the various research and development groups within the five principal
business segments, are responsible for our research and development efforts. HP Labs is part of our
Corporate Investments segment.
Expenditures for research and development in fiscal 2006 were $3.6 billion compared to
$3.5 billion in fiscal 2005 and $3.6 billion in fiscal 2004. We anticipate that we will continue to have
significant research and development expenditures in the future to provide a continuing flow of
innovative, high-quality products and services to maintain and enhance our competitive position.
For a discussion of risks attendant to our research and development activities, see ‘‘Risk Factors—
If we cannot continue to develop, manufacture and market products and services that meet customer
requirements for innovation and quality, our revenue and gross margin may suffer,’’ in Item 1A, which
is incorporated herein by reference.
Patents
Our general policy has been to seek patent protection for those inventions and improvements
likely to be incorporated into our products and services or where proprietary rights will improve our
competitive position. At October 31, 2006, our worldwide patent portfolio included over 30,000 patents,
which was approximately equivalent to the number of patents in our patent portfolio at the end of
fiscal 2005 and significantly higher then the 25,000 patents we held at the end of fiscal 2004.
Patents generally have a term of twenty years. As our patent portfolio has been built over time, the
remaining terms on the individual patents vary. While we believe that our patents and applications are
important for maintaining the competitive differentiation of our products and maximizing our return on
research and development investments, no single patent is in itself essential to us as a whole or any of
our principal business segments.
In addition to developing our patents, we license intellectual property from third parties as we
deem appropriate. We have also granted and continue to grant to others licenses under patents owned
by us when we consider these arrangements to be in our interests. These license arrangements include
a number of cross-licenses with third parties.
For a discussion of risks attendant to intellectual property rights, see ‘‘Risk Factors—Our revenue,
cost of sales, and expenses may suffer if we cannot continue to license or enforce the intellectual
property rights on which our business depends or if third parties assert that we violate their intellectual
property rights,’’ in Item 1A, which is incorporated herein by reference.
Backlog
We believe that backlog is not a meaningful indicator of future business prospects due to the large
volume of products delivered from shelf or channel partner inventories, the shortening of product life
cycles and the relative portion of net revenue related to our service and support businesses. Therefore,
we believe that backlog information is not material to an understanding of our overall business.
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