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Capellas: New HP ready to prove itself

The new Hewlett-Packard will have approximately six months to establish itself in the marketplace, incoming company President Michael Capellas tells investors at a conference.

SAN FRANCISCO--The new Hewlett-Packard will have approximately six months to establish itself in the marketplace, incoming company President Michael Capellas told investors Thursday, but the company will hit the ground running.

Capellas, speaking at Merrill Lynch's Hardware Heaven conference here, said the next big challenge lies in quickly bringing to fruition the company's plans to forge HP and Compaq Computer into a single entity.

"You've got about six months or less...to have that very quickly execute in the marketplace," the current Compaq CEO said.

HP, though, is certainly prepared, Capellas asserted. The company has established its product plans for the next three years, he said, and determined its corporate organization. Account managers for the largest 100 accounts have also been appointed. Details on these issues will be released Tuesday.

Capellas said that a team made up of representatives from both companies probably did a better job of developing a three-year plan than the individual companies had ever been able to do. The companies' respective product plans "will probably be clearer than when they were going in," Capellas said.

You are what you eat
The new HP in many ways will resemble the old Compaq. The company's strategy will largely revolve around aligning itself with technology giants such as Microsoft and Intel and large consulting firms to deliver products that will be cheaper than those from companies such as IBM and Sun Microsystems, which tout their own internal developments.

To succeed in servers, "you become the No. 1 go-to-market partner for Intel; you become the No. 1 go-to-market partner for Oracle; and you become the No. 1 go-to-market partner for Microsoft," Capellas said.

At the same time, HP will integrate enough of its own high-level features into its products to create a gap between it and Dell Computer, which is known for its mass-manufacturing efficiencies but performs less independent research. The new HP will "put some intellectual property into the Linux world" and stress its management software.

In its heyday, Compaq strove to use standard components to make PCs and servers that were comparable in price to competing products but contained enough original engineering to set them apart. By contrast, HP spent considerable effort on building Unix servers and its own chips.

The universe of potential competitors, Capellas said, has also become fairly small. There are only four: IBM, Sun, storage giant EMC, and Dell.

"After all these years, we've come down to five companies," he said, adding that IBM was HP's biggest concern. Sun is particularly vulnerable, he asserted, because the shift from Unix, Sun's historical mainstay, is occurring faster than anticipated.

"You are going to see Windows and Linux absolutely eviscerate the midrange proprietary Unix," he said.

Survival of the fittest
Many Compaq products will also survive the merger, Capellas indicated. "When we had a choice between two products, market share wins unless you give me some awfully compelling reason," he said. Compaq leads HP in many key markets, including Intel-based servers and PCs.

The merger is also paying HP unexpected dividends. The new company is actually seeing greater cost savings than anticipated. The combined company will buy larger volumes of components from fewer suppliers than the separate companies.

"We have found substantial savings in direct procurement above and beyond what we thought," Capellas said. "It is very clear that you have long-term success with fewer strategic partners. Fewer strategic partners, particularly with our volumes, is the way to go."

Consequently, reducing the number of suppliers could set off competitive tremors in the component market.

The two companies are also more disciplined now as a result of the merger planning.

Like Michael Dell and other speakers at the conference, Capellas said that business has picked up recently, but it's still too early to declare a turnaround.

"We are starting to get a little bit of pickup on the corporate side. You're seeing small projects open," Capellas said.

News.com's Ian Fried contributed to this report.