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HP: Happy and healthy

Hewlett-Packard is satisfied with the success of its post-merger Personal Systems Group--and it's not stopping there.

Hewlett-Packard says it's a fine time to be in the PC business.

The company on Friday expressed satisfaction with the success of its post-merger Personal Systems Group. But it's not stopping there. HP will continue to offer aggressive prices and new products, including some forthcoming Media Center PC models, in an effort to stay ahead of rival Dell Computer, company executives said.

The Personal Systems Group, which builds products ranging from Pavilion desktops to iPaq PDAs (personal digital assistants), was formed after HP's merger with Compaq Computer. Executives in the group were charged with sorting out HP's PC brands, cutting costs, and reaching profitability goals for its PC business.

Since last summer, when the company first outlined its goals, the division has performed well, Duane Zitzner, executive vice president of HP's Personal Systems Group, said in a conference call regarding the group's progress.

"We're extremely pleased coming off (HP's fiscal first quarter) with our results. We're very pleased with the progress we've made," he said.

The Personal Systems Group was profitable for the quarter, which ended Jan. 31, with revenue up 2.1 percent, sequentially. Though profits were up, HP was still off its pace. Fourth-quarter sales in the PC unit were $5.1 billion--well below the $6.3 billion posted a year earlier.

However, the unit has helped HP to capture the top spot in worldwide PC unit shipments during the fourth quarter. HP shipped about 120,000 units more than No. 2 Dell.

Zitzner said that the Personal Systems Group will continue to compete aggressively, using two main strategies, one of them involving lowering prices.

HP has reduced its costs and expects to realize about $1 billion in savings this year. Those savings are helping it cut prices--which were as much as 15 percent higher than Dell's before the merger, the company said.

Price will be a key to future success, Zitzner said, but HP won't go so far as to give up profitability for market share. "We have to balance both," he said. "We've got to be able to move the business so that we're both gaining market share...while being able to have a very good bottom line. Being ambidextrous is something we have to do as a business."

HP's other weapon will be its products, including models such as its Media Center PC and Compaq Tablet PC TC 1000. The company is preparing to deliver a new shipment of its Media Center PC. The machine was so popular it sold out over the holiday season, HP executives said during the conference call. Consumers should expect to see both lower-priced desktop Media Center PCs and the first portable Media Centers from HP.

The company's tablet PC is also selling well, the company said Thursday.

While HP says its business is going strong, it still faces challenges. Aside from Dell, which rivals it in the consumer and corporate markets, eMachines and Sony are looking to wrestle away buyers on the consumer and retail end.

Analysts have said HP has been doing well since the merger and should run neck-and-neck with Dell for the No. 1 market share position for several quarters to come.

HP has "been able to stay pretty strong throughout their categories," said Steve Baker, an analyst with NPD Techworld, which tracks retail and distributor sales. "Don't forget that HP's PCs are part of a big mix of products, including printers, that's all part of an integrated whole. The products play off each other very well."