HP Services Unit Racks Up New Deals

Despite an internal memo indicating services revenues were down due to the distraction of the merger, HP's Services division continues to win new contracts.

Hewlett-Packard Co.s HP Services division is putting on a brave face--championing new contracts and a business-as-usual attitude--despite the uncertainty swirling around HPs merger with Compaq Computer Corp.

Some HP and Compaq services customers say support could slip if the integration isnt smooth.

HP officials continue to downplay an internal memo from HP Services President Ann Livermore that was leaked to the press that indicated services revenues were down due to the distraction of the merger.

As a counterpoint, HP on Tuesday will announce it has signed an $80 million outsourcing deal with an as-yet-unnamed German company, beating out outsourcing behemoths IBM Global Services and Electronic Data Systems Corp., according to sources familiar with the deal.

That contract follows significant wins in January, including a $75 million extension of HPs outsourcing contract with Nokia Corp. According to published reports, HP officials claimed Livermores recent gloom-and-doom memo was simply an effort to motivate employees through a challenging period.

Despite the obvious distractions, HPs services organization continues to deliver "excellent" support, according to one user.

"We didnt think twice about it," said Mike Carpinella, manager of network services at Philadelphia law firm Duane Morris LLP. "They helped us out in a jam. We call them twice a week and get to their second-level person fairly quickly, regardless of the politics going on. We just ordered four brand-new servers in the last two days. This is not stopping us from moving forward."

Still, if responsiveness suffers in the integration phase of the merger, it could cause Carpinella to "step back," he said. With 150 HP servers in 19 offices around the country, he is worried that his organization may not be able to access the number of technicians it needs as easily as it has in the past.

HP officials declined to comment on the health of HP Services. If it has seen slower growth, customers and industry observers seem willing to attribute it to the state of the economy and its impact on the services business.

"You always hope its not going to distract HP from going forward with their current intentions," said Rob Trinkner, engineer at Team Rahal Inc., a Hilliard, Ohio, open-wheel racing team. Trinkners team uses HP mission-critical services to ensure uptime on its HP hardware. "We have a customer engineer that goes to every one of our races," he said.

"The reality is the services industry--some segments of it--has slowed this year anyway because of the economy," said Eric Rocco, vice president of services research at Gartner Inc., in Lowell, Mass. "If youre not selling as many servers and desktop units as you were, that will affect services. But it might be exacerbated by issues with the merger."

HP, of Palo Alto, Calif., has been less aggressive in offering new services than its counterparts at Compaq Global Services, according to John Madden, an analyst at Summit Strategies Inc. in Boston.

"HPs been in a holding pattern in coming to market with new services," Madden said. "Compaq has not been standing still. Theyve come out with new mobile and wireless solutions, and their Microsoft practice is really strong."

Still, Madden and others believe that the merger and the resulting controversy have made some users hesitant. "Clearly people are holding off on making decisions until its settled," said Bill Martorelli, an analyst at Hurwitz Group in Framingham, Mass.