Compaq CEO Sees 'Upside' To H-P Merger Cost Savings
By: Mark Boslet, Of DOW JONES NEWSWIRES
PALO ALTO , Calif. -(Dow Jones)- Even as the corporate technology market continues to "bump along the bottom," there are some modestly encouraging signs of a business uptick, Compaq Computer (NYSE: CPQ - news) Corp. (CPQ)
Chief Executive Michael Capellas said.
"We're starting to see just a little bit of a pickup in the corporate side," Capellas told investors at the Merrill Lynch hardware conference. "We're starting to see some signs of life."
Speaking to a Wall Street audience for the first time since Hewlett-Packard Co . (HWP) received formal approval to buy Compaq, Capellas said some corporations have begun moving ahead with storage and wireless projects and to kick off new efforts to develop software applications.
There is some built-up demand in the corporate market, he explained.
Capellas also said extra cost savings are being found in the companies' $18 billion combination, which is scheduled to take place by May 7 . The merger plans call for savings of $2 billion in savings in 2003 and $2.5 billion in 2004.
"There's definitely upside," he said. "There have been areas of savings that are larger than I thought." One area, in particular, is the direct purchasing of components.
Capellas, meanwhile, said the new company would continue to push ahead with the direct sales of products, such as computers. Both H-P and Compaq have been trying to close the gap with the more efficient direct-distribution strategy of Dell Computer Corp. (DELL).
Capellas said the goal will be to get excess inventory out of the system. "It is inventory that is the enemy," he said.
He added that the job of integrating the two companies' cultures may not be as tough as some people predict. The organization held a weekend retreat for 300 managers last week and "it wasn't particularly obvious who came from which company," he said.
It is always a tough job to meld cultures, but "I think you'll find the cultural aspects are far less than you're led to believe," Capellas said.
On top to that, H-P Chief Executive Carly Fiorina and "I get along amazingly well," he said. "God knows we've been through enough already."
Capellas said the marketing message from the new company will be straightforward. "The messaging is really simple. We are going to drive this industry-standard computing," he said, where proprietary products from suppliers such as Intel Corp. (NasdaqNM: INTC - news) (INTC) and Microsoft Corp. (NasdaqNM: MSFT - news) (MSFT) create computing platforms that many companies can sell.
Customers, he added, "want an alternative" to International Business Machines Corp. (IBM).
-By Mark Boslet, Dow Jones Newswires, 650-496-1366; mark.boslet@dowjones.com
(This story was originally published by Dow Jones Newswires)
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