HP hit the ground running to shore up its customer base and aggressively pursue new business following the buyout of Compaq, but it's far too early to determine whether its gamble will pay off.
Hewlett-Packard Co. hit the ground running this month to shore up its customer base and aggressively pursue new business following the buyout of Compaq Computer Corp. But, while HP appears to be executing well early, it may be years before it can be determined whether its $19 billion gamble pays off.
Meanwhile, since the launching of the "new" HP May 7, the leaders of HPs four business divisions and their sales teams have been out in force around the globe to ease customer uncertainty and pursue new opportunities.
So far, HP, of Palo Alto, Calif., has posted impressive victories, last week securing a three-year deal to supply servers, storage and PCs to General Mills Inc., and a week earlier announcing a deal with Reuters Ltd. (See story, at right, top.)
Yet, despite its early successes, HP faces an uphill battle to fend off competition in the high-end server market from IBM and Sun Microsystems Inc., low-end pricing pressure from Dell Computer Corp., and storage market leader EMC Corp. The company also faces challenges to its services business from imposing market leaders IBM Global Services and Electronic Data Systems Corp. (See story, Page 26, right.) And, while the "new" HP has plans to use its increased PC market share to drive printer sales, the companys toughest task may be to improve PC business profitability. (See story, at right, bottom.)
"Clearly, weve got some challenges. And you know the strategy is clearwe know where were goingbut now it comes down to execution," said HP President and former Compaq Chairman Michael Capellas, speaking at a news conference May 7.
Those challenges fall on the shoulders of four senior vice presidents HP selected to head its four divisions. They are:
Peter Blackmore, director of the Enterprise Systems Group, comprising servers, storage and software;
Ann Livermore, director of HP Services, who oversees a staff of 65,000;
Duane Zitzner, director of the Personal Systems Group, comprising desktop and notebook PCs, as well as handheld access devices, such as the iPaq; and
Vyomesh Joshi, director of the Imaging and Printing Group, comprising HPs ink-jet and laser printers, digital copiers, digital cameras, and related supplies.
Early reactions from system managers who have been briefed on HPs new product road maps have been largely positive. "Representatives of both HP and Compaq have repeatedly assured us that theyll continue to meet earlier commitments as far as our systems go, so we really have no concerns over their merger," said Nasdaq spokesman Mike DeMeo, in New York.
Nasdaq manages financial data on more than 50 Himalaya servers, a fault-tolerant system that can cost more than $1 million apiece and that HP acquired along with the rest of Compaq.
HPs smaller customers have also expressed satisfaction with how things have progressed so far. "Our Compaq representative has pretty much kept us in the loop," said Marshall Fernholz, procurement manager for the American Medical Association, in Chicago. With HP vowing to adopt Compaqs commercial PC and Intel Corp.-based servers, "were not seeing any changes, at least at this point," Fernholz said.
Indeed, the acquisition of Compaq provided HP with much-needed competitive firepower. Prior to the addition of the Himalaya line, the company had no fault-tolerant servers to offer. While HP did offer Intel-based servers, its sales were well behind those of Compaqs ProLiant brand, the market leader. In PC sales, HP made money on its consumer Pavilion line, while its commercial line ran in the red. Compaq had the opposite problem: Its corporate PCs made money, but its home PC unit was operated at a loss.
It was those synergies, Capellas said, that made this merger worthwhile.
While Gigas Enderle agrees HP has a lot to offer, he said he remains skeptical whether the company will be able to communicate that message effectively enough to win over customers.
"Their strength really comes down to their size. Theyve got good geographic coverage with their services, a breadth of technology in servers and storage that is incredibly strong," Enderle said. "But getting that word out requires marketing skills neither HP nor Compaq has demonstrated. So, until I see some strength in marketing, my overall perception [of the buyout] remains negative."
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