March 11, 2002 3:00 PM PST

HP, Compaq: Sales to guide product picks

Revenue and market share are two of the dominant factors Hewlett-Packard will use in determining which products to keep and which to eliminate should its pending merger with Compaq Computer go through, executives said.

If shareholders approve the merger March 19, Hewlett-Packard will implement an "adopt and go" strategy, rapidly identifying which product lines provide the strongest strategic advantages and phasing out the others, Webb McKinney said on Monday. McKinney is president of the Business Customer Organization at HP and one of the co-chairs of the integration team.

In determining which product lines to adopt, the company will largely look at the bottom line, said Jeff Clarke, Compaq's CFO and the other co-chair of the integration project. Revenue and market share were the two factors he listed first that come into the decision-making process, followed by engineering spending and brand strength.

"There are overlaps in industry standard servers, PCs and Unix servers. We will be adopting the more successful product set," Clarke said. "We clearly looked at how successful these businesses are."

Making these determinations by the numbers could prove a boon to some Compaq departments and employees. Although Compaq is the company being acquired, it's stronger in business PCs, notebooks, Intel-based servers, and handhelds, according to analysts and computer resellers.

At the same time, most analysts say HP is doing better in Unix than Compaq.

Determining which products to keep in this manner could also have substantial repercussions in the company's eventual organization, as HP will also largely keep the engineering, sales and management teams behind the chosen products. HP won't keep 100 percent of a team behind a product, but it might retain 80 percent of it, McKinney said. Hypothetically, therefore, HP may lay off some of its own people if it adopts Compaq products.

"We want to maintain the cohesiveness of the organization," McKinney said. "The basic assumption is that we will adopt the teams that go with the business."

Both McKinney and Clarke added that most of the integration plans have been completed but can't be shared externally until after the results come in from the shareholder vote, which takes place March 19.

The two companies, both added, have concentrated intensely on integration. "We now have more than 900 HP and Compaq employees working full time on integration," McKinney said. The integration committee holds an all-day meeting with general managers and other key executives each Wednesday to determine the status of the integration effort. The committee then meets with Carly Fiorina, HP's CEO, Compaq CEO Michael Capellas and others Thursday. A Web site detailing projects that need to be completed in the integration process contains approximately 10,000 files, McKinney said.

The company's goal is to be prepared to begin functioning as one company the day approval is granted.

In regard to corporate cultures, the executives said the gap isn't that wide. The main difference between the two companies comes down to how decisions are made.

"HP tends to take a very methodical approach to decision making. We have what could be called an engineering culture," said HP's McKinney. "Compaq grew up as a PC company. PC companies have to be very, very fast and make decisions quickly.

 

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