Fiorina's biggest test
In its first earnings report reflecting the Compaq acquisition, for example, Hewlett-Packard said it would have earned $420 million in the three months ended July 31, before charges. Or there are the recent results from research firm IDC that showed HP beating out IBM in corporate server market share.
If you want bad news about the HP-Compaq merger, that's also easy enough to find.
The reconstituted HP chalked up some $2.4 billion in nonrecurring charges because of the Compaq acquisition. What's more, management is only about one-third of the way through the required restructuring of the merged company, which means you can figure on another $4 billion to $6 billion in bad news before this is all flushed through.
And before you get overly enthusiastic over those seemingly upbeat numbers from IDC, keep in mind that the total market for corporate servers has declined significantly.
But if you were looking for a conclusive answer about how this merger is going to fare, you'd do just as well to consult the tealeaves. There are still too many unknown variables.
HP faces a fired-up Dell at the low end and a Sun Microsystems determined to retain its powerful position in the higher-end market for corporate server machines. IBM, which remains HP's biggest competitor in services, further bulked up when it bought the consulting services arm of PricewaterhouseCoopers. HP also faces tough competition from Big Blue in the booming laptop market, where Toshiba also looms large. Sony has recovered nicely from its uneven start into the computer market a few years ago. While Gateway and eMachines are down, they are certainly not out. And then there is always Apple Computer and its loyal cadre of users.Another equally important battle looms behind the scenes, where management has its hands full dealing with the infighting and corporate politics that inevitably emerge in the aftermath of a mega-merger. HP needs only to tune into the soap opera at AOL Time Warner to remind itself what's at stake.
A couple of years ago, the AOL-Time Warner deal was being touted as the merger of the century. But the merged management has been utterly feckless at guiding the company through the transition. That dysfunction now threatens to turn it into one of the biggest failed combinations in business history.
It took about two years before AOL Time Warner's problems came to light. If there's any trouble at HP, we'll no doubt learn about it a lot sooner. This was the most closely watched and widely reported merger in U.S. business history; savvy reporters close to the scene or disgruntled insiders only too willing to blow the whistle on Carly Fiorina will quickly expose any internal problems.
Assuming that Fiorina can steer past the shoals, and HP stays ahead of the competition in PCs and printers, Wall Street may buy into the strategy. A lot depends upon how long it takes for information technology products to snap back. Fiorina can't wave a magic wand and return to the salad days of late 1999. What she can do is make sure everyone under her command is marching in the same direction. This remains her toughest test.
If the management foundation that underlies the merger unravels, and the infighters prevail, rest assured that Steve Case of AOL won't be the only big-name tech executive with a question mark hovering over his future.
John Dickinson has worked in the computer industry for more than 30 years in positions ranging from systems analyst and software engineer to editor, writer, critic and industry analyst. His most recent engagement was at Emachines, where he managed the company's Internet and software business units.