IT Giants Lobbying Hard

Both International Business Machines Corp. (IBM - Analyst Report) and Hewlett-Packard (HPQ - Analyst Report) have disclosed their U.S. federal and state lobbying expenses (Lobbying is the practice of influencing government decisions) and political expenditures from trade association in recent filings.

California-based HP spent $790,000 (2.9% of total revenue) as lobbying fees to the State, Commerce and Treasury departments for domestic and foreign trade issues in the second quarter, up $340,000 from the comparable quarter last year.

The issues dealt with included the dismissal of China’s plan to set up HP PCs with Internet filtering software in China. China withdrew the agreement after security personnel warned that it might infringe international trade rules. The costs also include charges on energy efficiency standards, immigration issues and tax laws.

The second-quarter lobbying costs are a huge jump from full year 2008. The company spent $938,980 (0.8% of total revenue) on business-software alliance, IT association and coalition for patent fairness. If HP plans to write off these expenses as one-time items, its profit in the coming quarter may get affected.

In comparison, IBM spent over $1.3 million in lobbying expenses in the second quarter, down $700,000 than the year-ago period. We believe the struggling economy, mounting layoffs and a drop in R&D funds may have pinched the big IT Giant, resulting in the lower level of lobbying expenses in the quarter.

IBM spent more than $2 million on lobbying in the first quarter, up from the $1.9 million spent in year-ago quarter and almost double from the $1.1 million spent in the fourth quarter of 2008 to launch high-tech stimulus projects. IBM’s lobbying expenses constituted about 6% of total 2008 revenue and may hurt the company’s bottom line.

IBM’s technology services and software contracts with the government generate revenue. The company’s urge to invest in smart grid infrastructure projects raised issues related to data security, smart grid development, tax and patent legislation and foreign trade agreements with emerging markets. Thus the lobbying charges include funding the departments of Defense and Homeland Security, cyber security and smart power grid issues, tax matters, immigration issues and government funding for scientific research.

Thus, rising lobbying expenses at big IT firms could soon be a matter of concern for shareholders.

Read the full analyst report on IBM

Read the full analyst report on HPQ