October 8, 2002 7:02 AM PDT

Fiorina: HP can fend off Dell

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ORLANDO, Fla.--Hewlett-Packard CEO Carly Fiorina on Tuesday downplayed competitive threats to the company's printer business from PC maker Dell Computer.

Last month, Dell announced that it had inked a deal with printer maker Lexmark International Group to create a line of Dell-branded products. Ahead of that deal, HP stopped supplying printers and other gear to Dell. HP also launched a bevy of new products to pre-empt Dell's move.

Analysts have speculated that Dell could reduce profit margins in HP's lucrative printer business by cutting prices on both printers and printer cartridges. Analysts said a printer cartridge that retails for $35 may only cost $3 to make.

"People are going to come after this business. We have succeeded against the low end of the market in the past. We have made a lot of money in this area and are gaining market share," said Fiorina, speaking here at a conference sponsored by market researcher Gartner. "I understand why Dell wants to be in this market. 'Dude, you're getting a Lexmark' just doesn't have the same ring."

Fiorina said HP's $4.3 billion research-and-development budget this year will help fend off Dell. "Dell is a channel of distribution, not an R&D company. I say to Michael Dell, come on in, the water is fine," she said. "To produce the next level of printing technology is a $900 million investment for us. Dell made an announcement to be a channel of distribution for someone else's product. Interesting strategy. The fact that Dell makes an announcement doesn't send us shaking in our boots."

In other areas, Fiorina acknowledged that HP has been slow to develop its own Web services software. "We were probably a little too late in (the Web services) market. So we are focusing where we can make a unique contribution," Fiorina said.

She said HP is investing in the development of software for managing Web services transactions and partnering with market leaders, instead of forging ahead with its own Web services strategy. "We're focusing on the manageability of Web services. It's a critically important piece of (customers') value proposition. And we decided that we should partner with BEA Systems on Java and Microsoft on .Net," said Fiorina.

Fiorina also gave a progress report on the integration of HP and Compaq Computer. The two companies announced their merger plans just over one year ago. Fiorina said HP "remains at or ahead of milestones" related to integration. "I think as compared to what many people expected--there were lots of nay-sayers--I think we have exceeded all those expectations. I'd give us a (grade of) 'B' for that."

HP will continue to reduce its work force, as was previously announced, Fiorina said. "We upped our targets in June. We said 15,000 reductions, with 10,000 out by Oct. 31. We are meeting or exceeding those goals," she said.

Fiorina added that HP will announce internally a new sales compensation program this week, which will take effect Nov. 1.

 

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