Dell's long, slow climb on R&D spending

From CNET News.com: Dell CEO Michael Dell is working hard to position the company as more than just a PC vendor. In fact, Dell is pushing the company upstream so much he’s willing to walk away from low-margin PC deals and spend more on research and development.

The catch is that Dell’s talk hasn’t caught up to his R&D spending as a percentage of revenue. Here’s what Dell said on the company’s third-quarter earnings conference call yesterday.

Our improved profitability and cash flow have enabled us to move forward with strategic investments both organic and inorganic. Innovation in both hardware and software is fueling our new product pipeline. We’re now investing in R&D at an annual run rate approaching a billion dollars. Dell now has 5,000 patents granted for pending around the world and has over 20 R&D (centers) globally. We’ve made five acquisitions since the beginning of this year. This is enhancing our capability as an enterprise solutions provider with a focus on server, storage, networking and security.

That phrase “solutions provider” came up frequently. Dell even walked away from $2 billion in PC deals because they didn’t fit the company’s broader strategy to move upstream to higher-end IT partnerships. In other words, Dell let Hewlett-Packard off the hook amid its rival's uncertainty so it can focus on servers, storage, networking, services, and software as a service.

Dell’s message is that the company can innovate and be more of a key partner in enterprise IT. For now, Dell’s messaging hasn’t caught up to its R&D spending.

CEO Dell touted a $1 billion annual run rate in R&D spending. Dell’s annual sales for fiscal 2012 ending Jan. 30 should come in about $62.5 billion. At its annual run rate, R&D will be 1.6 percent of revenue. For respectability, Dell needs to hit 3 percent perhaps.

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