Compaq takeover has already harmed HP

Hewlett Packard's protracted takeover of Compaq is already having a negative effect on its business - despite months of bullish statements from HP claiming the opposite.

Over the past few months Carly Fiorina, CEO of HP, has repeatedly stated that the $25bn merger will significantly benefit the company.

However, according to a memo sent by HP executive Ann Livermore to her managers, HP's only growing division, information technology services, has taken a big hit.

She told managers that the division's revenue and profit were "well below plan" in the current quarter and that new orders remained "very soft."

Livermore admitted that the arguing over the deal was having an impact on employee productivity and customer decision making.

Walter Hewlett, chief opponent of the deal, has been warning for many months that the merger will damage HP. This latest scandal will seen by his supporters as proof of the flawed nature of the deal.

HP's primary reason for buying Compaq was to beef up its services division in order to take on IBM Global Services.

However, Clive Longbottom, analyst at Quo Circa, recently said it was a case of the blind leading the blind.

HP and Compaq have a long history of providing support to their own customers but it is not on the same corporate level as IBM.

In an interview with Dow Jones, Livermore dismissed the memo as a rallying cry aimed at motivating her managers. Service revenues rose six per cent last quarter and on average contributes 20 per cent of the company's total annual revenue.

The current quarter ends on 30 April.