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HP takes merger into a new year

HP, about to complete its first fiscal year as a combined entity with Compaq, finds itself at a pivotal place: The old HP looks to tie up loose ends; the new turns toward the future.

    Friday marks a significant turning point for Hewlett-Packard. As the company enters its first full fiscal year as a combined entity with Compaq Computer, the old HP is looking to tie up loose ends, and the new one is looking toward the future.
    Learn more about HP post-merger

    HP sees the end of this last fiscal year as a key deadline for several tasks--some of which it has already accomplished. At the same time, the start of the new year begins a large-scale public makeover after 2002's mega-merger.

    Lingering compensation differences between those who sold Compaq gear and those who sold HP gear will end Friday as HP initiates a unified system for compensating all its U.S. salespeople. HP has also laid out a unified benefits program, which takes effect for U.S. workers on Jan. 1. The end of this fiscal year is also HP's self-imposed deadline to complete at least 10,000 of its planned 16,800 job cuts.

    "We are meeting or exceeding each of those goals and targets," CEO Carly Fiorina said in a recent speech.

    Come next week, HP is set to unveil a major face-lift, which will create a new image for the company and establish its future direction. The effort will include a redesigned, more commerce-centered Web site, due to launch Monday or Tuesday, and HP's first major post-merger marketing campaign, also beginning in November.

    The company, too, will unveil a more detailed strategy for its software business and, sources said, further its push into utility computing, similar to IBM's. In meetings with reporters and analysts earlier this month, HP also discussed ways it hopes to wring more money out of its printing division.

    But though some things seem to be running smoothly, other integration tasks aren't exactly following the script.

    The company had aimed to have a number of its key internal computer systems merged by the start of the fiscal year. The focus, HP said, has been on its SAP order-fulfillment systems, its human-resources software, its software for managing customer relationships and its core financial transaction-processing systems. However, the company did not say which of those systems have been integrated and which have yet to be done.

    In a statement to CNET News.com, the company said only that "our strategy has focused on the core application systems this past quarter, and we are on track with the migration to our 'destination' applications and eventual retirement of 'sunset' equivalents." The company said it plans to announce more details when it reports quarterly earnings next month.

    HP won early post-merger praise in some areas of information technology such as integrating its e-mail system with Compaq's and establishing a single HP.com Web site almost immediately after the buyout was completed. The Web site was largely a front door leading to separate, premerger Compaq.com and HP sites, but that stopgap measure will come to an end next week when HP unveils a new site, which fully integrates both premerger companies' products.

    Taking the tiger by the tail
    Other aspects of combining the internal technology of the two companies have proved to be trickier. Peter Blackmore said in a speech last September that IT integration has been the toughest challenge of the merger process, with the "longest tail" of any of the animals the merged company has been faced with taming.

    Another area in which integration efforts are taking longer involves HP's international reach. In Europe, various local regulations prevent the merged companies from acting as one.

    HP said efforts in Europe are on track, but noted that in some countries, such as Germany, France and the Netherlands, not all of its plans have been implemented.

    "Europe is not the United States of Europe," said IDC analyst Crawford Del Prete. "Those countries all have different legislation...It's going to take longer in Europe."

    And too, the company has suffered some when it comes to market share. In both its server business and in PCs, the new HP has lost significant ground worldwide from where the two companies were separately a year ago. However, HP representatives said the company has gained share in both those markets during the last quarter.

    Finally, as it starts the new fiscal year, HP has also noticeably thinned its ranks.

    The company recently upped the number of jobs it expects to eliminate to 16,800, from an earlier estimate of 15,000 merger-related cuts.

    But all things considered, HP is doing pretty well, Del Prete said. "There was so much perception that (the merger) was going to be an absolute disaster." Instead, Del Prete said, HP has had product road maps from the get-go, and appears to be winning satisfaction from most of its customers. "The company is doing a decent job of keeping its promises," he said.

    The company is also starting to get some tentative approval from Wall Street. Although shares are down from when the merger closed, HP shares are up by more than 33 percent from an Oct. 9 nadir of $11.16. HP closed Wednesday at exactly $15 a share.

    A number of Wall Street analysts made positive comments on HP this week, noting that the company is likely to beat earnings forecasts for the quarter. Much of that comes on the back of its printer business, which produces more profit than the company as a whole. However, several analysts expect HP to significantly narrow the loss in both its PC and Enterprise Systems businesses as the effects of layoffs and procurement cost savings begin to be felt.

    Fiorina said at a recent event sponsored by research company Gartner that HP would reach its goal of achieving $500 million in post-merger cost savings by the end of this fiscal year. In the coming fiscal year, HP plans to take those cost savings up to $2.5 billion.

    Analysts said HP may turn to further layoffs to boost its cost savings.

    "We would not be surprised if there (were) more headcount reductions announced in the future," Lehman Brothers analyst Dan Niles wrote in a research note this week.