The marriage of two giants

So who won? Who lost? Hewlett-Packard Co.’s planned purchase of Compaq Computer Corp. is a gamble – and we won’t see the ultimate results for years.

A lot could change in the time it will take for HP and Compaq to gain regulatory approval, complete their merger and rationalize product lines and sales strategies. Technology, the economy and the marketplace could shift dramatically along the way.

But why should that stop anyone from declaring winners and losers?

Winner: IBM Corp. Investors apparently think the deal stinks for HP and Compaq. By the end of trading on Tuesday, Sept. 4, HP and Compaq stock prices had dived and IBM was up. Why? IBM’s profits have been climbing. HP’s profits barely exist, Compaq’s have disappeared, and the combined company’s revenue is expected to drop for the next two years. Someday the new HP may be a threat to IBM, but not anytime soon.

Loser: Hewlett-Packard culture. David Packard died in 1996. Bill Hewlett died last January. And on Tuesday, Hewlett’s people-centric “management by walking around” was put to rest, with HP’s announcement that it will pink-slip 15,000 of its own and Compaq’s employees so it can afford the merger.

Loser: IT purchasing choice. HP will “rationalize” the merged product lines – that means getting rid of products. In the meantime, it’ll be a year before corporate IT people know what products will be chopped and what they’ll be facing.

Winner: IT budgets, at least in the short term. We’re already in a PC price war, and Dell Computer Corp. will step up the price pressure to grab customers who had Compaq brand loyalty. And once the HP/Compaq merger is complete, the new HP will be going after IBM’s successful services business, giving an advantage to IT shops that are willing to shop around.

Loser: Microsoft Corp., slightly. Yes, it’s nominally one less PC-making customer. But it’s also less leverage. HP, Compaq and Digital have been three of Microsoft’s strongest allies over the past decade in its battles with regulators and other opponents. Now they make up, er, one of Microsoft’s strongest allies.

Winner: Dell, probably. If Dell can grab former Compaq customers, it could win big – and customers will be up for grabs as HP cuts products and shifts customers to the HP brand name. Some analysts think Dell will eventually need to buy an enterprise services company of its own to stay in the game. But wasn’t that Compaq’s plan?

Winner: Gateway Inc., maybe. What Dell doesn’t get, Gateway probably will.

Losers: PC retailers and resellers. The downside: fewer choices, less vendor competition and unhappy customers who miss their favourite brands. The upside: more shelf space.

Loser and winner: Sun Microsystems Inc. There’s no love to be lost between staid HP and its brash cross-town rival. The new HP will continue to undercut Sun’s control of Java, and now Sun will be fighting to get Java on HP’s PCs. But Sun doesn’t have to worry about PC price wars – and nothing in the old HP or Compaq was able to stand in the way of Sun running rampant in the server market.

Winner and loser: Linux. HP and Compaq are both strong Linux backers, and that’s not likely to change. But for the next two years, HP and Compaq will be too busy trying to make their merger work to spend much effort pushing Linux.

Loser: HP CEO Carly Fiorina – in the short term, at least. On deal day, HP’s stock price was at a 52-week low. As of that night, it had dropped 19 per cent and was at a five-year low. That’s gotta hurt. And Fiorina faces the unenviable task of absorbing Compaq and the undigested remains of Digital, chopping 10 per cent of the combined company’s workers and presiding over what she acknowledges will be revenue declines for the next two years.

Fiorina may win in the end – but it’s going to feel like she’s lost for a long time to come.

Hayes, Computerworld (U.S.)’s senior news columnist, has covered IT for more than 20 years. Contact him at [email protected].

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