The ratings on Palo Alto, Calif.-based Hewlett-Packard Co. (HP) remain on CreditWatch with negative implications. The CreditWatch reflects the still uncertain outcome of the shareholder vote on the pending merger with Compaq Computer Corp. Standard&Poor's recognizes the strategic validity of the merger, the improved market position of the combined company, and HP's strong financial profile for the rating. However, these positive factors are offset by the heightened level of operational and strategic execution risk inherent in a merger of this size in the highly competitive and rapidly evolving technology market. HP's weaker profitability levels and diminished earnings predictability reflect the impact of its computer hardware segments, which are currently unprofitable and operate in extremely challenging and competitive environments.
