Concerns rise over HP-Compaq deal

Industry reaction to the proposed merger between Hewlett-Packard Co. and Compaq Computer Corp. has come in, and it is decidedly “thumbs-down.”

In an announcement that surprised most of the IT community, Palo Alto, Calif.-based Hewlett-Packard (HP) announced on Sept. 4 that it will acquire Compaq Computer Corp. of Houston.

The merger of the two computing giants is expected to close in the first half of 2002, provided it receives regulatory approval. If it does go through, the HP name will be kept and the company will be headquartered in Palo Alto, but with a strong presence in Houston, according to a company press release.

According to a report from Giga Information Group Inc.’s Craig Symons, vice-president and research manager, management and organization, the financial world has issued a “resounding rejection” on the merger. The rationale for the verdict? Symons’ report stated there is a lack of strategic rationale for it.

Stamford, Conn.-based Gartner Inc.’s George Weiss, vice-president and director, enterprise systems and storage group, said there will be some negative impact on the two companies because of the uncertainty surrounding it.

“We’re not very confident that they will be able to maintain their market share. There will be some negative impact there because of the degree of uncertainty that users face,” Weiss said.

In addition to the merger, HP and Compaq announced a combined total of 15,000 job cuts, but the companies haven’t announced which business unit the cuts will affect. The two companies offer multiple overlapping technologies, but each firm also has technologies that complement product lines from the other, Weiss said. A notable example is the server market.

“What Compaq had and HP didn’t, and vice versa. . .is part of that question regarding how do you consolidate when there are perhaps both overlapping and complementary (technologies)?” Weiss said.

The companies will likely complement each other’s research and develop for next-generation Itanium systems, he said. Specific to product lines, Compaq doesn’t have a software package like HP’s OpenView system software. When it comes to overlap, both HP and Compaq have RISC-based servers, Unix operating systems and Web servers.

The merged company will be structured around four business units: image and printing, access devices, IT infrastructure, and services. Current HP Chairman and Chief Executive Officer Carly Fiorina will remain in her current position. Michael Capellas, chairman and CEO of Compaq, will become HP’s president.

“The move…can be a positive if the two organizations are able to meld their cultures and their technologies together without too much disruption to users’ buying plans,” Weiss said. “It can be a positive if they can clearly outline a roadmap that will take the users relatively painlessly from current generation systems to next-generation systems.”

Both companies have proclaimed similar directions, missions and philosophies, he added. The biggest challenge for the two companies will be integrating their technologies into something that’s coherent and harmonious for the user. Weiss said that kind of integration could take anywhere from 18 to 36 months to complete.

“It’s not un-doable, it’s not unachievable, but it will take some powerful personalities and forces within these two organizations to display this harmony and keep the messages on target from this point of time all the way through to later executions when the organizations are merged,” Weiss said.

A he lack of details by HP and Compaq officials on how their overlapping product lines would shake out has many users nervous.

“Until the news of this merger, we had plans to standardize on Compaq ProLiant for all of our servers. I need to know that I can get a replacement hard drive if one goes bad two years from now,” said Jeff Couillard, senior network engineer for Clayton Group Services in Novi, Mich. Couillard has an assortment of Compaq Alpha and ProLiant servers, HP LHr Pro and Dell PowerEdge gear. “If the ProLiant line is scrapped in favour of the HP L-series, I could be in trouble.”

Couillard has started considering Dell Computer Corp. for his server buys.