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Agilent Technologies, Inc., the high-tech spin-off from Hewlett-Packard Company report the following operating profit for 2008 in its 10-K ($ millions):

Net revenue:    

Products                                                                                              $4,804

Services and other                                                                                970

Total net revenue                                                                              5,774

Costs and expenses:

Cost of products                                                                               2,030

Cost of services and other                                                             548

Total costs                                                                                           2,578

Research and development                                                           704

Selling, general and administrative                                           1,697

Total costs and expenses                                                             4,979

Income from operations                                                               $795



a. What percentage of its total net revenue is Agilent spending on research and development?

b. How are its balance sheet and income statement affected by the accounting for R&D costs?

c. Agilent has reduced spending on research and development by over $300 million since 2003. What impact has this reduction had on operating profits? What are the potential long implications of this reduction in R&D?

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