HP Says Cost Savings From Merger Ahead of Schedule

Hewlett-Packard Co. will achieve its planned $3 billion in cost savings after its merger with Compaq Computer Corp. by the end of this fiscal year, one year ahead of schedule, Chief Executive Carly Fiorina said Tuesday at a meeting with Wall Street analysts.

“The integration process is now one year ahead of schedule as we continue to drive improvements in our cost structures and in our competitive position,” Fiorina told analysts gathered at the San Francisco Hilton. “We achieved 75% of our cost-cut target last fiscal year, so we are going to get all $3 billion this fiscal year.”

The ability of Palo Alto-based HP to meet its accelerated target “does not depend on the market turning up or an increase” in information technology spending, Fiorina said.

The computer and printer maker acquired rival Compaq in May.

Steve Milunovich, a technology analyst with Merrill Lynch in New York, said HP could continue to reap cost savings from the Compaq merger for the next couple of years.

“There’s huge cost to be cut between these two companies, and I think it’s going to be a gift that keeps giving,” he said.

Fiorina did not raise the company’s estimates for sales and profit in the first quarter of the new fiscal year, which began Nov. 1. HP had said previously that it expected to earn 27 cents a share on sales of $18.4 billion.

Some analysts considered those estimates a conservative goal and thought HP would raise its guidance.

“The economy continues to remain uncertain, and we want to make sure we don’t get ahead of ourselves,” Fiorina said.

She also said that she expected the market for HP’s products to grow by 2% to 4%, down from previous forecasts of 4% to 6%, although the firm’s market share should remain constant.

Two of HP’s money-losing units will come out of the red this fiscal year, Fiorina said. The Personal Systems Group, which sells desktop, laptop and hand-held computers to consumers, will break even this year, and the Enterprise Systems Group, which designs and sells corporate computer networks, will turn profitable.

She also raised the outlook for the booming Imaging and Printing Group. Its operating profit will be 13% to 15%, 2 percentage points higher than previously announced. HP is the world’s top manufacturer of computer printers.

Shares of HP fell 60 cents to close at $19.23 in regular trading on the New York Stock Exchange on Tuesday as the meeting was getting underway. They fell as low as $18.50 in after-hours trading.

The company’s shares are off more than 50% since the Compaq acquisition closed.