HP opens new page in industry
( 2002-05-08 08:46 ) (1 )

Hewlett-Packard (HP) began a new chapter Tuesday with Compaq Computer in its fold, a combination that will either create a technology powerhouse, or a corporate blunder of record proportions.

The official "launch" of the merged company was set for yesterday, although HP indicated on Friday that the deal was already "closed."

The combined firm traded for the first day on Monday under a new symbol on the New York Stock Exchange, rising 78 US cents to US$18.22. It was the biggest gain for HP since January.

But Wall Street has been sceptical of the merger, a US$20 billion deal that sparked corporate civil war in Silicon Valley.

Both the influential Moody's Investors Service and Standard and Poor's have been less than enthusiastic. Moody's recent lowered HP's credit rating because of the "significant" risks associated with integrating the firms, while Standard and Poor's maintained its negative credit outlook, citing similar concerns.

Echoing the concerns of Walter Hewlett, who led the opposition to the deal, analysts are doubtful that the companies can concentrate on merging their businesses while keeping voracious competitors at bay.

"Longer term, we are unsure how competitive HP/Compaq will be versus Dell and IBM and Sun (Microsystems)," said Tony Sacconaghi, a computer hardware analyst with Sanford Bernstein investment house.

Fiorina and Compaq CEO Michael Capellas face daunting goals: cost savings of US$2.5 billion, 15,000 in job cuts and 2003 earnings predictions of US$1.53 per share of the new company, a 12 per cent increase over what HP was able to generate flying solo.

The vehicle to achieve these benchmarks will be a cobbled-together company that operates in 160 countries and regions, employs some 140,000 employees and sees revenues of almost US$90 billion, that will make the new HP second only to IBM in the computer company column.

Also working against the merger is the continued slump in corporate spending on computers and other technology gear - the so-called Information Technology or IT sector.

"We are concerned about the integration process under current market conditions," said Credit Suisse First Boston debt analyst Mark Altherr.

Adds Bank of America analyst Joel Wagonfield: "Given the downturn and delay in an IT spending recovery since prior projections, we expect lower revenue estimates."

Another goal will be trying to heal the rifts created by the merger battle. Centre stage in that endeavour will be trying to soothe employee concerns over layoffs, which Hewlett has predicted will top more than 24,000 instead of HP's predicted 15,000.

HP employees will have to deal with the symbolic end of the HP family's presence in the company, a tenure marked by a more family approach to the workplace.

During the merger fracas, Hewlett was ousted from the HP board, marking the first time the company has operated without an HP heir in its 63-year history.