Industry troubles have taken their toll, but HP's Martin Murphy tells Jamie Smyth he is optimistic and a new $1.5 billion deal proves he has reason to be

A drab brown office block on Dublin's North Circular Road is not the most obvious place to find the general manager of the State's biggest revenue generating technology firm "hanging out". But the former Compaq Computer office, recently rebranded HP, is where Mr Martin Murphy chose to meet the press earlier this week.

Park House, a big ugly building sitting like a giant cardboard box on the edge of Cabra, is one of several Compaq sites that HP has inherited following its $18 billion (€18.4 billion) technology merger completed in May.

Mr Murphy, who has spent hundreds of hours over the past two months working on the Irish-specific elements of the merger, is keen to show that the former bitter rivals are now one integrated IT supplier.

"One of the most important things about the new organisation is culture," says Mr Murphy. "It's important that we take the best of the two firms' cultures and blend them together into something which reflects a new philosophy."

Despite the challenges posed by a bitter eight-month battle to win shareholder support for the merger, and the sustained industry downturn, Mr Murphy - who was appointed head of HP Ireland in June 2000 and at 39 remains one of the firm's youngest European general managers - says he is "optimistic".

It hasn't been as hard as first thought to merge the companies here because they were both US groups and there was still a huge amount of similarities with Digital, the firm which Compaq originally acquired here, he says.

"As so much pre-planning went into the merger, we hit the ground running around issues of culture, organisation and product roadmaps. That made a huge difference for us because our customers knew where we were going."

HP Ireland has signed several deals since the merger. None has been announced yet in the Republic although Mr Murphy said HP Ireland had sold its first superdome server - a high-end UNIX server - in the Republic to a Galway-based firm called APC.

Yet the challenge for HP, which recorded a $2 billion loss in the last quarter following the merger, is daunting. The company faces aggressive competition from competitors Dell and IBM at a time when the IT market is shrinking, and it struggles to come to grips with its own organisation.

Mr Murphy acknowledges it will be tough for HP to achieve its pre-merger milestone of not slipping below a target of 5 per cent of Compaq and Hewlett-Packard's combined revenues for the firm.

"Put the merger aside for a moment. We are in a very tough environment in a market where you have to go out and compete for every piece of business on its own merits. . . Right now we are only eight to 12 weeks of a merged firm. It's probably best to have that conversation after the fourth quarter."

HP's ink-jet printing operation at the firm's technology campus in Leixlip, which supplies the European region, has been one of the company's most robust over the past 18 months but the opportunities for growth in this sector are limited, and it is elsewhere that HP wants growth.

"I have been focusing my energies in the last six to eight weeks on finding out where HP is going in the Irish market from a business perspective and what strategies will continue growth," says Mr Murphy, who now manages a staff of 4,000 in Ireland, and a portfolio of activities that span software, sales, IT services and banking.

"We see our business as essentially a services-led business and one of the great advantages of the merger is we have a very large and healthy global services business here. We are constantly looking at ways to underline this."

The announcement this week by HP that it had signed its largest global services deal, a $1.5 billion seven-year contract with Canadian Imperial Bank, will give Mr Murphy's strategy a boost. And the integration of Compaq's services business in the Republic, which generated in excess of $60 million turnover in 2000, should give him the tools to do it.

IBM's recent acquisition of PwC Consulting means HP could face strong competition in the services market in the Republic, although Mr Murphy does not believe this will hurt HP from developing its IT services arm.

"What we are seeing is a shift in the market. People are looking for complete IT solutions," he says. "They aren't looking for piecemeal solutions and that is driving the dynamics in the market. That is why HP is strong."

Following a company-wide review over the past three months, Mr Murphy has targeted three new markets to promote growth and boost revenue at HP. These are e-Government, third-generation (3G) mobile technology and the financial services industry.

"The financial services industry is quite strong in the Republic and has not been affected as strongly as the rest of the economy by the downturn," says Mr Murphy, who believes the deal with the Canadian Imperial Bank will help HP create market momentum.

Mr Murphy is also hopeful of securing major contracts in the field of 3G mobile phone technology.

"We can offer them infrastructure and also thought leadership around the type of services that will be deployed on these networks."

The challenge will be for HP to win business in this emerging sector. Mr Murphy's position on the Government Broadband Advisory Board should help somewhat. He will also be evaluating HP's options to take part in the Government's €300 million plan to develop fixed broadband infrastructure in the regions.

HP's much larger presence in Northern Ireland post-merger (it now has 80 people compared to 12) should also enable it to target sales in that area.

"At the Washington Summit last week, we arranged a meeting between Sir Reg Empey, Mary Harney and Michael Capellas. . . Northern Ireland is a good opportunity," he says.

"HP is in continuous information-sharing mode with the Government. The knowledge economy is here to stay and we have a good vision around what role Ireland can play in that space. What I need to make sure of is that this vision, which covers e-government, education and broadband, remains a priority."

HP Ireland escaped the worst of the job cuts earlier this year following the merger, with just 80 of 4,100 staff being made redundant. The diversification of the business in the Republic and the high esteem in which it is held by HP headquarters were key factors in the firm's decision, although he does not rule out further job cuts in the current environment.

On the question of recovery, Mr Murphy is also cautious. "I think we will not see it for at least another 12 months. Some people say the first quarter 2004 although I think we will see it start to come back before then."

Of one thing he is certain, further consolidation is coming to the technology industry and many niche players will not survive. In the current market, being big is an advantage, he says.

Next week: Jamie Smyth interviews the managing director of NTL UK and Ireland, Mr Stephen Carter, about the company's plans post Chapter 11.