HP-COMPAQ merger surprises users and leaves them skeptical

David Stavetski, midrange systems manager at Birmingham, Ala.-based Saks Inc., was dropping his kids off for the first day of school when another parent told him about Hewlett-Packard Co.’s plan to acquire Compaq Computer Corp.

“I was stunned,” he said. “This was monumental.”

Users nationwide were similarly shocked by last week’s announcement of the US$25 billion deal that will combine two computer giants into a behemoth with $87 billion in revenue, while creating the world’s largest PC maker and the dominant company in the server market.

The shock soon gave way to skepticism. In an exclusive Computerworld survey of 129 senior IT leaders at large companies, 59 per cent of the respondents called it a merger of desperation on the part of the two vendors.

Many users voiced their concerns about the problems the merger could have for their IT operations, touching everything from service quality to technology options that some said could even have national security implications.

“I’m hoping that HP recognizes that Compaq’s quality and customer service are superior to their own and will leverage that to their benefit,” said J. Douglas Dalrymple, enterprise network and systems management practice leader at Sprint Corp.’s E/Solutions group, which uses both companies’ products.

But he said he doubts it.

“Honestly, I believe that HP will try to short-circuit Compaq’s quality and customer service infrastructure in order to reap some quick profit from the merger,” he said.

Late last month at its own user conference in Chicago, HP came under attack from its customers for its lagging service capabilities. In a session designed to address the problem, one audience member blasted the company. “HP has an internal IT problem. The left hand does not know what the right hand is doing. I’ve got three different customer IDs,” he said.

“We’re aware of the problems,” Jurgen Rottler, vice president of HP services, said at the meeting.

Many Compaq users worry that their technology will lose out in the deal. Hal Kuff, manager of technology services at Tessco Technologies Inc., a wireless communications company in Hunt Valley, Md., said that while it’s still too soon to draw conclusions, “at first blush, I see little positive news for OpenVMS or Tru64 [Unix].”

Tessco depends on legacy equipment installed by Digital Equipment Corp., which Compaq acquired in 1998. “With the HP scenario, we have serious concerns about the ongoing support of those two operating systems,” Kuff said.

Perhaps the gravest concerns were raised by David Cooper, senior scientist and former CIO at Lawrence Livermore National Laboratory in Livermore, Calif. “We have not been able to get HP to show much interest in high-performance computing, except at the low end,” he said.

Compaq is currently developing the 30 TFLOPS Q Machine as part of the government’s Accelerated Strategic Computing Initiative, which is intended to keep the U.S. at the forefront of scientific computing. Cooper, who is on a presidential commission for advanced technology, characterized that goal as “a national security issue.”

“If Hewlett-Packard drops out, high-performance computing is in a very tenuous position,” said Cooper.

Jim McDonnell, HP’s vice president of worldwide marketing and business customer organization, said that while he was unfamiliar with the specifics of the Q Machine, the company will honor all of Compaq’s agreements.

Other large Compaq deals were also clouded by the announcement. Less than two weeks ago, Compaq inked a $100 million deal with Sabre Holdings Corp. in Fort Worth, Texas, to move its massive airline reservations system off a mainframe environment and onto Compaq’s Himalaya servers.

“We don’t anticipate it impacting us, but we’ll have to have some further conversations with them to verify that,” said Sabre spokeswoman Kathryn Hayden.

At Auburn Hills, Mich.-based Gedas Inc., which provides data communications for Volkswagen of America Inc., also in Auburn Hills, IT users fretted about desktop options.

“Our desktop decisions are based on leasing,” said Elliot Zeltzer, Gedas’ manager of telecommunications and data services. “A third of our PCs roll [over] every year. We’re a heavy Compaq user. This makes the market cloudy going forward.”

Nearly everyone contacted by Computerworld last week acknowledged that it’s too early for a meaningful assessment of what the merger will mean for a company’s operations. But the timing couldn’t have been worse for some IT users.

“We’re in a trough of disillusionment right now,” said Paula Hunter, chairwoman of the 450-member ASP Industry Consortium in Wakefield, Mass. The current market instability contributes to everyone’s overall nervousness, she added.

But not everyone focused on the negative aspects of the deal.

“Ultimately, what will happen is that HP will focus on getting more [cost-effectiveness] out of technology, and that’s a good thing,” said Royce Green, CIO at Affiliated Computer Services Inc. in Dallas.

And since the acquisition would bring Tandem’s high-volume transaction processing capabilities under HP’s control, that could mean a competitive surge between IBM and HP in the enterprise, said Eric Dean, CIO of United Airlines Inc., which is a very large customer of HP’s.

“When Compaq bought Tandem, I thought how sad, they don’t have clue one about dealing with major institutions,” Dean said. “But HP gets it. I did a lot of Tandem consulting way back when, and I’ve been continually impressed with its technology. Now, this is a big if, but if the management structure of the new merged organization can recognize the potential of leveraging the Tandem platform, it would now be ensconced in the second-largest computer manufacturer in the world.”

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