Mirroring the events of last year, Compaq and Hewlett-Packard user groups from around the world convened for the first time earlier this month to talk about a merger of their own.

The Europeans have already done it, and according to Dave Wilson, the president of the Canadian Association of Compaq

Users (CANCU), it is likely that joining forces is the way many groups will go.

“”We’ve built a good working relationship with HP as an organization, and are trying to put together programs with other HP user groups,”” he says. “”We had a summit of the different user groups in Canada last fall and have created a coordinating group, bringing it all together under one person at HP. It seems to be working well.””

If the merger for the user groups is similar to that of their parent organizations, they should be ready for a lot of doubts and uncertainty — and a lot of time in the boardroom. Paul Tsaparis, president of HP Canada, says the global company spent more than one million hours trying to figure out how to work together. At its Palo Alto, Calif.-based headquarters, chief executive Carly Fiorina and others created an integration office to manage the process.

In Canada, HP staff did the same thing. In fact, HP’s local arm has been recognized by the integration office as the lead country worldwide for its go-to-market strategies and governance practices, Tsaparis says, several of which have been leveraged by other HP operations.

HP celebrated its one-year anniversary of the Compaq merger on May 6 when it announced an “”adaptive infrastructure”” strategy, but the new entity officially launched on May 7, 2002, when executives announced the combination of product and services roadmaps. According to Wilson, the anguish that could have occurred over losing some of Compaq’s product line was eased with good management on HP’s part.

“”The press often referred to this as a takeover, but it certainly wasn’t a purge.””

While the combination has caused some decline in HP’s share of the server market and has failed to boost its PC revenues, recent contract wins with Procter & Gamble and Ericsson have catapulted the company into a major services player, according to IDC Canada. Outsourcing analyst Jason Bremner says HP’s performance should not be judged by the number of new customers but rather the amount of money they will generate.

“”You’ll generally have a small number of clients spending a lot of money. They signed a CIBC deal in November of 2002, so now you have one client committed to spending $300 million a year,”” he says.

Grant Westcott, head of technology infrastructure at CIBC in Toronto, says the merger puts the financial institution in a “”sweet spot between a product relationship and a product agnostic service relationship.””

Before the merger, CIBC relied heavily on Compaq technology but has historically had strong ties with the service side of HP. This, he says, makes the combined company a one-stop shop.

“”We have a good product relationship and a good service relationship as well,”” he says, but noted the outsourcing deal is still in transition.

“”We’re still learning how to extract maximum value out of the whole mix. That takes time, but it’s a good place to be.””

HP would not break out specific numbers on how many Canadian employees have been laid off since the merger, but Tsaparis says the CIBC deal brought many new staff over to the local organization.

The merger did mean a loss of some ground in the server space for HP, says IDC infrastructure hardware research manager Alan Freedman. He says in the first quarter of 2002, HP held 12 per cent of the server market and Compaq had 21 per cent of the space. In the following quarter, the joint HP-Compaq presence fell to 27 per cent, though it inched up to 28 per cent by the fourth quarter.

The company’s total market share for 2002 was almost 30 per cent — not bad considering all major mergers come with an expectation of at least temporary performance upheaval, Freedman says. The companies handled the merger relatively well, he says, but there were some hitches along the way.

“”Some of our research shows they could have done a better job communicating with and keeping in contact with some of their (channel) partners,”” Freedman says.

Initial concerns about the post-merger product support road-map lured some enterprise customers away from HP Canada, says Eddie Chan, hardware research analyst for IDC Canada. The company handled those concerns well, though, unveiling its strategy quickly and calming any existing customer uneasiness, he said.

Evans Research analyst Bill Fournier says the merger helped HP Canada gain ground in the business printer space, increasing its share from 40 per cent in 2001 to 46 per cent in 2002. But while performance in the business segments improved year-over-year, Fournier wonders how much of the increase was actually influenced by the merger.

“”Compaq already had a huge clout with networks,”” he says. “”So it may be that MIS managers who had been Compaq shops already decided it would be better to deal with just one organization and moved more of their business over to HP Canada. But maybe they just had a lot of good products that year.””

— with files from Shane Schick

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