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Taking the pulse at HP

[Q+A] Enterprise systems boss Peter Blackmore and services chief Ann Livermore match performance versus expectations one year after the completion of the computer industry's biggest-ever merger.

After a long, bitter battle to win shareholder approval to buy Compaq Computer, Hewlett-Packard devoted the last year to integrating the two companies and proving critics wrong.

More than that, HP wanted to demonstrate that it is a better company for having done the deal.

High on the list of strategic benefits touted by HP was the prospect of increasing its share of the services business as well as returning its high-end computing business to profitability. On the eve of the one-year anniversary of the completion of this megadeal, the heads of those respective businesses--Services chief Ann Livermore and Enterprise Systems Group boss Peter Blackmore--sat down for an interview with CNET News.com.

Let's start on the general topic of where you think HP is one year later.
Livermore: If we turn the clock back a year or so, there were lots of people who questioned whether we'd be able to achieve the cost synergies, who questioned whether we would be able to integrate the two companies--and there were also people who questioned could we do this and at the same time keep the focus on the customers.

I think we are at a point where we have met or exceeded every goal that we set associated with the merger: the cost synergies, the customer satisfaction metrics, the employee metrics and also the thousands of projects that were part of the clean room that have been implemented.

Blackmore: Twelve months ago there was a lot of popular opinion of how difficult this would be. Could we manage to retain customers? Could we integrate the product road maps? If you look at the results, clearly we've achieved what we set out to do, and I think we have won huge accolades from our customers. It was very much our merger and not their merger. That was what they were worried about.

(We) did some breakthrough things. It sounds simple, but we asked companies to choose their own account leads. That means a lot to customers, and they really appreciated that. We also integrated the road maps very, very well. We came out on day one with absolute clarity. We did not change our minds, which again may sound obvious but if you go back to other mergers, people were not that resolute and problems occurred.

We certainly believe that there are all sorts of consolidations that are going to continue to happen in the services industry.
-- Ann Livermore, executive vice president, HP Services
The merger hasn't been the disaster that some predicted and you are given pretty high marks on the cost cuts, but there seems to be more concern about growth. Is HP really better positioned against IBM on the one hand or Dell on the other? When is the growth going to start?
Blackmore: Clearly, that is the question people are asking. We need to point a number of things out. We have shown good sequential growth...the year-on-year comparisons, which they tend to focus on--obviously you can't give an exact comparison to our competitors because we did retire some products. We did change some things, but we've held share extremely well and we are now growing sequentially.

How much work is going to go over to India in the next couple of years?
Livermore: We already have almost 5,000 (people) in India doing application work for us in development and support as well as other delivery of IT services. It is going to be a substantial part of our overall services delivery network. We believe that (India) is a resource base that has great technical talent, great cost and great quality. When you put those three things together, that makes a country or a place a fabulous resource base. We have not made public specific numbers, but it is going to grow very aggressively for us.

Is there a cost benefit?
Livermore: The cost-saving advantage in India is just huge when you look at the salaries of people in India and the education level. Depending on what you are currently paying and what part of the states or where in Europe you are located, it can be anywhere from one-third of the price to one-seventh of the price.

With the acquisition you became No. 3 in services--a fairly distant No. 3 in services. One of your competitors is clearly struggling, and there has been a lot of talk they may be looking around. There was a report that you may have been talking with EDS. What do you make of that?
Livermore: They are probably in a better position to respond to that then us. We certainly believe that there are all sorts of consolidations that are going to continue to happen in the services industry.

Did HP talk to them at any point?
Livermore: They are a partner and a major reseller of our technology

What about on the M&A front?
Livermore: As you know, our standard policy is we never say anything about what we are or are not discussing.

You have talked about one of the key strategic goals being returning the enterprise business to profitability in the second half of the year. With the war and concerns that the economy may be getting worse rather than better, is profitability still achievable regardless of the economy. Or, are economic concerns starting to raise doubts?

We came out on day one with absolute clarity.
-- Peter Blackmore, executive vice president, HP Enterprise Systems Group
Blackmore: They have not raised doubts. If you look at the sequential improvement from the third quarter, we improved by 64 percent. We then improved from the fourth quarter to the first quarter by 36 percent. So you can see the trajectory we are on--hence, the strength of our convictions.

On the integration front, are you still meeting once a week?
Blackmore: A lot of the work that had to be done has been completed--we're talking about way above 85 percent. There are still areas that were planned to take longer than the first 11 months. Some of the IT integration takes longer. It's not visible externally, but you can't move all of your systems overnight

We have fortnightly meetings, but they're much more about the operation of the company, the growth. If there are any integration items that need to be put on the agenda we do that.

Livermore: Most of the businesses still have in place someone who is the integration lead managing those last projects that haven't moved into the operations. The people dedicated to that comprise a very tiny number now.