Fiorina: Compaq Acquisition Paying Dividends

Despite offering a somber projection that the high-tech industry will experience only "nominal growth" through 2006, Hewlett-Packard Co. Chairman and CEO Carly Fiorina on Tuesday nevertheless projected a bright future for her company, contending its controversial buyout of a longtime rival is already paying dividends.

In her opening address at a two-day HP conference for industry analysts in Santa Barbara, Calif., Fiorina once again defended her controversial decision to acquire Compaq Computer Corp., arguing that the merger and the benefits of the "new HPs" broader product and service offerings are already winning customers over.

The $18.5 billion deal completed in May significantly broadened HPs product and service offerings, but also forced the already struggling company to tackle the daunting task of integrating about 60,000 Compaq employees with HPs 90,000-plus work force spread across 160 countries. In addition to the logistical challenges, HP now must market, support and ultimately consolidate several once-competing product lines.

During a seven-month proxy fight HPs founding families waged to halt the merger, Fiorina publicly set several goals the company would seek to achieve within 30 days of completing the deal. In the five months since the buyout, she said HP has met or is on track to meeting all those goals, including lowering operating expenses by $500 million this year and eliminating 10,000 jobs.

The successful integration efforts are now paying off, she said. Citing HPs own internal data designed to measure the companys won/loss record since May for "strategic" corporate contracts, Fiorina said, "We are winning against Sun [Microsystems Inc.] 68 percent of the time … and winning against IBM 69 percent of the time."

Overall, she said, the Palo Alto, Calif., computer maker has regained its footing and has started to reverse the market-share losses that undermined earnings last year.

Looking at "competitive deal-close rate compared from May to today," she said HPs win rate against Dell Computer Corp. jumped 78 percent, against IBM it climbed 29 percent and against Sun it increased 25 percent.

"We are gaining momentum and traction in the marketplace," she said.

Recapturing market share is especially important following the collapse of the high-tech spending spree that fueled the industrys dramatic growth a few years ago, she said.

That boom went bust in 2000, with the collapse of thousands of dot-com companies and the start of a U.S. recession. Hard times have made high-tech a hard sell.

"Most CIOs and most CEOs know they overspent on technology in the 90s. They spent on hot boxes and killer apps," Fiorina said. "The environment has changed, and IT is not going back to where it used to be."

Looking ahead, Fiorina predicted the computer industry will see low single-digit percentage growth in sales next year and only 6 percent to 10 percent through 2006, well below the more than 20 percent growth rates of just three years ago.

With corporations reining in their IT spending, she argued, companies will no longer be interested in unproven technology, but instead will look at only purchasing products and services that clearly bolster their business and provide a clear return on investment.

"Chief information officers are increasingly as worried about their IT investments in the copy room as they are about their IT investments in the data center. … It is about all of the information they manage in all of its forms," she said. "Which is why we think our portfolio of imaging and printing, and computing, and professional services positions us in a unique way against any competitor."

See also:

Special Report: HP Courts Compaq

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