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Analysis After a wave of executive departures and a solid earnings report from HP, we're left wondering: "What has Carly done?"

Over the past year, HP has axed tens of thousands of workers, trimmed product lines and lost hundreds of millions of dollars from anything not printing or inking. But the company seems to be moving at last into a post-acquisition calm.

The executives who came over from Compaq and stuck through the tough times are now toddling off to greener pastures. Lately, HP has also managed to wring profits out of both its PC and hardware businesses in the same quarter; and complaints from the user base have been fairly muted. There is a long road ahead to be sure, but the Carly Fiorina engine which many expected to backfire seems to be puttering along okay.

"There is never a single point at which you say everything is done," said Gordon Haff, analyst at Illuminata. "There are always some residual threads that will continue for a long time, but, if you look now, this is as convenient a place as any to say the merger is over."

There are few HP cheerleaders in these parts, but you have to give Fiorina a nod for putting the finishing touches on the day-to-day operations of the new HP. Ever the optimist, the HP CEO set bold targets for the merged HP/Compaq and has largely met these objectives. In addition, the last couple of months have seen HP trim off any excess executive baggage and put every business in the black, even if just by a hair's breadth in most cases.

Gone are Howard Elias and Mary McDowell. Elias was the storage guru at Compaq who took on a similar position at HP - only to find himself shoved around a bit and then on his way to EMC. McDowell headed up the succesful ProLiant server division at Compaq and then again took on the same role at HP. Last month, McDowell departed for Nokia.

With these two departures you can see how far the new HP has come. The storage and ProLiant businesses were the two prized possessions brought over from Compaq. These operations turned HP from a struggling hardware provider to the leading vendor in almost every market. And now the two executives responsible for the past success have moved elsewhere. But how much have their departures hurt the company?

"It's always best to be a little careful about how much is read into what a few specific individuals have decided to do," Haff said. "The product lines that Elias and McDowell ran are still in place and have their roles within HP."

Gone too is Jeff Clarke, the former CFO at Compaq, who had headed up HP's extensive supply chain tuning operations.

The old Compaq folks do account for the bulk of exits but to what degree does this point to internal squabbles or discomfort at HP?

"It's certainly true that a lot of the highest profile Compaq executives are gone now, but I think you would find there were lots of individual factors in all of those cases," Haff said. "It's not so much Compaq people being forced out but rather them becoming smaller fish at some level and not really seeing the opportunity for change any time soon."

So there it is - the Compaq crew did their work, the businesses have settled and everyone has moved on, looking for a bright future.

Back at Fiorina Central, the signs of calm appeared with last month's close of HP's fourth fiscal quarter. HP reported net income of $862 million verus $390 million in the same period the year before and also saw revenue jump 10 per cent from $18 billion to $19.9 billion.

"This was a great quarter. By any measure, we hit our stride and demonstrated what the merger was all about," Fiorina said at the time.

We're a bit less gushy than captain Carly for a couple of reasons. First off, HP is still taking various charges to offset some losses and is seeing the printer division account for the vast majority of income. But, to its credit, HP made its PC and server/storage divisions hit profitability in the same quarter for the first time in a long, long while. The PC group posted income of $21 million and enterprise systems cranked out $106 million.

If that's what the merger is all about, Fiorina made a big mistake. The palty $127 million produced by the PC and enterprise hardware groups is a far cry from the hundreds of millions earned by Dell. Still, the demand was there to make these businesses profitable after axing thousands of jobs; and HP has managed that.

"Once you have profitability across all the divisions at the new HP, that's a good spot to say, 'The merger is behind us,'" Haff said.

All told, the acquisition of Compaq does not seem to have afffected HP the way many people expected. Most accounts still show that morale is low, profits that aren't printing are thin and Fiorina is not loved by many. The objective of the deal, however, was to plan for the long term, and HP has set itself up nicely for that test.

While it did lose some share to rivals, HP did not collapse under pressure from IBM and Dell while merging. It also held on to key executives during the rough part of the integration process and has emerged with profits across the board.

For the time being, Fiorina has bought some breathing space and has a brief moment to enjoy this calm. ®

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