HP Still Working Out Compaq Kinks

An SAP integration "was more disruptive than planned" to the supply chain, costing the Americas division of HP's Enterprise Storage Group about $400 million in revenue and $275 million in operating profits.

More than two years after Hewlett-Packard Co. merged with Compaq Computer Corp., integration of the two companies IT systems is still causing HP headaches.

The Palo Alto, Calif., company expects to announce next week the results of an internal investigation into how a bungled integration of separate HP and Compaq implementations of SAP AGs enterprise software contributed to a surprising shortfall in fiscal third-quarter sales and earnings.

In a conference call with analysts Aug. 12, HP CEO Carly Fiorina said "unacceptable execution" and a "migration to a new order processing and supply chain system [that] was more disruptive than planned" had cost the Americas division of HPs Enterprise Storage Group about $400 million in revenue and $275 million in operating profits.

Specifically, the integration of the SAP implementations involved 35 order processing system migrations and included an upgrade to Version 4.6C of SAP R/3, said HP spokesperson Christine Schneider.

The glitch came during the 35th migration when a planned three-week disruption in the supply chain module of the SAP software extended unexpectedly to six weeks due to at least seven small factors, including the improper routing of some customer orders, Schneider said. The move caused, among other problems, a major backlog of HPs Industry Standard Server orders.

/zimages/2/28571.gifHP is scrambling for footing with its Alpha-based servers. Click here to read more.

Although the supply chain problems have been fixed for now, Schneider said HP wants to know "what went on, how we are addressing it, what we are doing to fix it."

A longtime SAP customer and partner, HP does not blame the Walldorf, Germany, company for the integration woes. HP acknowledged that SAP was only minimally involved in the actual integration process, which HP handled itself.

"On the very day Carly [Fiorina] talked with [analysts], HP was sitting with SAP talking about a deepening of our relationship," said SAP spokesperson Bill Wohl.

After Kees DenHartigh started receiving two of everything he ordered from HP this spring, an HP sales representative explained about the SAP integration issue. DenHartigh, a systems and network analyst at the University of Alberta in Edmonton, is sympathetic.

"When you think of merging two companies like that, there are huge logistical problems involved in orders going in and shipments being met," said DenHartigh. "Youve got to hand it to them, theyre trying to cover all the bases."

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