HEWLETT-PACKARD INDIA : The Merger that Worked

HP India now accounts for 80% of the group revenues; the rest is services exports Group steps up outsourcing activity – “Leveraging India like no other company in the world” Digital carries on firm growth, and gets ready to absorb most of HP ISO

Group Revenues The HP Group The Money Came From
HP India Balu Doraisamy Neelam Dhawan, Ravi Aggarwal Ravi Swaminathan Kapil Jain Deepak Shah Zarir Batliwala
HP ISO Padma Ravichandran, VS Subrahmanyam Ramesh Aswath Ravi Parmeshwar
Digital GlobalSoft Som Mittal NVP Tendulkar Pramode Fernandes Prashant Sankaran AN Rao Bala Mahadevan Prashant Bhatnagar
HP Labs India Dr Srinivasan Ramani Dr KSR Anjaneyulu Prof UB Desai Warren Greving Dr Gita Gopal Shekhar Bargaonkar
HP Global e-Business Vivek Nagarkatti V Ravichandran V Sriram Mayur Bharath Olivier Machetto B Kasinathan Anshul Varma
1989	HP India set up in November; HP takes over sales operations from distributor Blue Star; ISO starts up in Bangalore
1994	Compaq launches India operations
1997	Compaq India set up with Rs 45 lakh investment, later upped to 2.25 crore.
1998	Compaq Computer buys Digital Equipment; Digital India demerges to become 51% subsidiary focusing on services exports
2000	HP Global e-Business Operations set up in Bangalore, for back-office/BPO work for HP
2001	Merger plans revealed in September
2002	HP, Compaq merge
2003	Digital to absorb half of ISO

This was a new group in the Top Five last year. But HP’s acquisition,
Compaq, was already in earlier at fourth place in 2000-01. Perhaps the
Hewlett-Packard India group’s #2 position for 2001-02 was a bit of an artifice–we
had simply added up the total revenues of separate companies that were not
really together through that year. Yet the merger had happened. It made sense to
show the full picture. Of course, there would be some settling down, the
elimination of some product lines and jobs...and, as industry insiders put it,
"one plus one would not add up to two".

Adding up the numbers

Well, the settling down has happened, and one plus one has added up to two,
even with some missing products and revenues. Though the group has dropped from
second to third place, there’s 8% growth. Given that HP India by itself had
shown a —13% drop the previous year, this is good going for the now
6,000-person strong group. India is one of the few countries where the merger
has been this successful in the market (HP India accounts for 7-8% of HP’s
Asia-Pacific revenues). And the integration is complete, says the HP India chief
Balu Doraisamy.

For those who came in late: a rough guide to the 2002 HPQ merger. HP acquired
Compaq, but the bigger and stronger Compaq ruled in India. The CEO, HR chief and
marketing chiefs for three of the four divisions came from Compaq; the finance
chief came from HP. Pre-merger-HP carried on as the imaging and printing
division, and pre-merger Compaq made up the enterprise, personal systems and
services divisions. That is of course a coarse picture, as many HP people did
continue in all divisions, but it’s not entirely inaccurate. And behind the
scenes, HP also managed to cut costs by about 15% (company figures) after the
merger.

The continuing tough period did take its toll. Printing and imaging product
sales grew – on the back of sharp price and margin drops. Margin pressures
were felt across hardware and services offerings. Government IT spend continued
to be poor. Desktops and Intel servers showed lackluster performance. Superdomes
sold; HP NonStop (nee Tandem) servers didn’t. Services, especially exports,
kept up healthy growth, with strong recruitment by ISO and the BPO group. There
was growth in Unix servers, storage, workstations and notebooks, and in printers
and services. Half the group revenue pie was systems, against 54% last year.

Digital GlobalSoft and HP ISO

Digital GlobalSoft is a solutions house for global enterprise customers. HP’s
ISO (India Software Operation), in addition, does a fair bit of engineering and
IP-oriented work on HP projects. Now that restructuring is on the cards, the
Digital name survives yet again. By end-2003, half of HP ISO will be absorbed
into Digital, with HP’s stake in Digital increasing from 50.6% to 73.2%, and
later to 76.2% by conversion of preference shares. (This merger now awaits
regulatory and shareholder approvals in India.)

ISO had grown its systems integration and IT services significantly over the
past year, to over 900 people, headed by Padma Ravichander. This group will be
integrated into Digital. The other group, V S Subrahmanyam’s System Technology
& Software Division (STSD), which works on IP-oriented R&D work for HP,
will probably continue as HP ISO–and likely double its nearly 1,000 staff
strength.

Digital will continue to function as a board-managed company with Som Mittal
as president and CEO. Other than its unique global position — as the only
"Digital" entity worldwide — it’s the only BSE-listed subsidiary
of a global IT major. Its board includes three HP executives (not from HP
India).

When Compaq assimilated Digital worldwide in their 1998 merger, Digital
India, then a strong systems (PDP, Vax and Alpha servers) and services brand,
lived on — as a services exporter, Compaq’s only joint venture (51% Compaq)
anywhere. Renamed Digital GlobalSoft in September 2001, it continued with
consistent growth, and retained its identity through the next merger with HP.

Global e-Business Operations

HP’s BPO company expanded rapidly last year. This subsidiary of HP Europe BV,
set up in 2000 for HP’s global back-office work, nearly tripled manpower, and
opened a new office in Chennai. While it has Doraisamy on the advisory board, it
reports directly to HP’s worldwide finance controller’s office in Europe.

This group handles transaction processing for debit and credit records,
vendor payables, fixed assets tracking, freight cost management and order
processing for some geographies.

This company operates as a cost-center; Dataquest estimates revenues of Rs 99
crore based on our BPO norms — remittances of 10 lakh per employee for the
average staff strength across the year.

Global Procurement Services

HP’s GPS (Global Procurement Services) is a 25-person group in India that
helps HP divisions and contract manufacturers source material and services,
primarily precision thermal heatsinks and related mechanical parts for systems.
The parts are sent to the USA, France, Germany, Thailand, China and elsewhere.
This group enabled HP divisions and contract manufacturers to source material
and services worth nearly $12 million last year.

HP itself outso—urces over 1,000 man-years of software engineering and
services resources to Indian companies, including TCS, Wipro, MPhasiS, Bluestar
Infotech and Infosys. "Between our own companies and groups, and our
partners, we’re leveraging India like no other company
does," says Doraisamy.

Team DQ