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HP sure merger with Compaq will pay off

San Francisco, Sept. 2 (Reuters): A year after announcing the biggest merger in technology history, Hewlett-Packard Co., the world’s new number one computer hardware maker, says the trends that drove the deal are transforming its industry.

Analysts are sceptical, but HP says that its $ 18.7-billion merger with Compaq Computer Corp., officially announced on September 4 last year to fierce resistance from shareholders and concluded in early May, is about more than cutting jobs and costs. “A year ago, everybody said we were all nuts. A lot happened in that year,” chief technology officer Shane Robison, a key strategist for the new company, said in a recent interview.

International Business Machines Corp., HP’s chief competitor as a technology one-stop shopping destination, has bought consultant PricewaterhouseCoopers and personal computer rival Dell Computer, is expanding into alliances so it can sell storage, printers and hand-held computers, in true copycat mode, Robison said.

“Commoditisation and consolidation is happening. People are out there trying to figure out how to do what we’ve already done,” he said. HP’s new scale will let it make computers cheaper than anyone, and it has services and software.

Doubts linger

Others doubt whether HP is a trend-setter. “I don’t think Dell is trying to be an HP,” said Gartner Inc. server and storage analyst Pat McGuckin. “Dell is certainly trying to broaden its portfolio, but it is being very careful to stay in the mainstream,” and target sure-fire profitable products, he said. Gartner expects Dell to retake the lead as number one PC maker later this year.

HP has yet to prove it can boost revenue beyond selling printers to Compaq customers, McGuckin said. “If there are synergies out there, I’d love to hear what they are. And we’ve been asking,” he said.

The merger’s first quarter, ended in July, produced mixed results. HP hit Wall Street’s earnings target and reported it was on track with merger plans, including cutting about 6,500 jobs by late August and rolling out a combined product line.

HP’s computer divisions, which include hand-held computers and storage, lost more than $ 600 million in the quarter, although the profits of the printing and services divisions topped $ 1 billion. Some analysts see a compelling value, given HP’s in-the-dumps stock price, in the printing unit and HP’s prospects to improve profits through cost cuts that competitors cannot match during the economic downturn.

Others ask whether HP can do more than slash costs. “The question is have you done something for shareholders to create value or not. And so far the answer seems to be no,” said Andrew Neff, an analyst at Bear Stearns. “HP was a great printer company beforehand.”

Robison acknowledges that the merger is often viewed in defensive terms, as a deal that filled in holes in the product lines. But HP is now the leading vendor in high-end computers, PCs and printers, and it is invited to discuss services contracts for building technology infrastructure.

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