In an interview, HP Labs director Prith Banerjee said the recession will force R&D labs to focus on fewer projects with bigger impact, the mantra of the reorg he lead since joining the company in August 2007. He singled out video conferencing and cloud computing as two technologies that could help companies drive through the recession.

In July, HP partnered with Intel, Yahoo and three universities to create research test beds for cloud computing. The group expects to name additional partners soon.

Despite the recession, HP Labs is not seeing major cuts so far. In fact the company even expects to increase some areas, such as its grants to universities which will go up more than 10 percent this year, Banerjee said.

The group is now going through its second annual evaluation of its core projects. They include work in optical interconnects at the chip and board levels, hybrid gesture/voice interfaces and flexible plastic displays using color reflective technology.

HP just closed its call for proposals for research from academia in areas aligned with the core eight focus areas at the labs. It expects to cull through the proposals and announce winners in May. Last year it awarded 41 grants of about $100,000 each to 34 universities in 14 countries.