HP/COMPAQ: Product lines in question

While Hewlett-Packard and Compaq await the shareholder votes that will take place Tuesday and Wednesday of this week, users and analysts are concerned about the future of both companies' product lines.

The two companies have a significant overlap in product families across the PC, PC server, and handheld groups, and there is even potential for clash on their Unix servers as well.

Of chief concern to most is the possibility that mission-critical Unix-based platforms, namely HP-UX or Compaq's Tru64 operating environments, will suddenly disappear.

"We have a scattered collection of both [HP and Compaq] servers around the company so we are concerned, to say the least, about which way they are going to lead us there. I would at least like to hear their story about how they might try to better tie the two together with software," said John Wagner, vice president of engineering for a large public utility in Reno, Nev.

Industry observers believe, however, that Compaq's ProLiant line would be the one to emerge as the combined company's choice for Windows NT-based servers going after the lower-end of the market given its present market share.

In one instance where the two companies can offer each other's technology an effective compliment, as well as help tie environments together, is HP's OpenView systems management software that could be used across the breadth of both companies server lines.

"One thing that is attractive is being able to take management products like OpenView and spread it across Compaq's servers. That would be a really nice benefit," said Crawford DelPrete, senior vice president in charge of hardware research for IDC, in Framingham, Mass.

Analysts seem split on how the two companies should handle the respective PC products whether or not they merge. Most agree, however, that if they do merge Compaq's PC line should be the one to survive given its market position. But if the proposed merger falls apart each company may have to make some tough decisions about getting out of the business altogether or just focusing on either the consumer or business market.

Based on a survey Forrester conducted among users, Charles Rutstein, research director of infrastructure from Forrester Research Inc. in Cambridge, Mass., thinks HP and Compaq should essentially combine the two businesses. But given that users give them equal scores for overall satisfaction they should drop the lesser selling brand, namely HP's desktop series.

"With satisfaction scores nearly identical -- which says users equate the two in most categories -- the decision about which brand to kill is straightforward. That would be HP in the corporate space," Rutstein said.

Some corporate IT executives took a dim view of the future of both companies PC businesses believing that whether they are combined or remain separate, neither one will flourish.

"I just don't see a bright future in the PC area for either one of them singly or together. Whatever they do here will only prolong the agony a little longer," said an IT executive from a Fortune 10 company.

Another reason analysts believe the deal is good for both companies is that it gives them not just the necessary size and economic clout to obtain better, although maybe only slightly better, deals with component suppliers and distributors, but also it would give them a better capability to offer a wider array of end-to-end solutions that more effectively compete against IBM Corp.

"What they would hope to do is paint a bulls-eye on IBM's forehead, and go straight after them. To do that they have to be a fully integrated producer of technology and services so they can sell the whole stack in a solutions oriented way," Rutstein said.

While sales of handheld devices for both companies are not much more than rounding errors on their collective balance sheet, there too Compaq's iPaq series holds a significant lead over HP's entry. But as Web services become more pervasive and appeal to more than just corporate users, the devices like the iPaq could come to represent a significant revenue stream.

"You have to think about what is over the horizon for handhelds. Today we see them as tools for white-collar executives but the next level up is where the folks who actually work for a living are, like truck drivers and beer distributors on their routes. At that point you are talking much bigger market with a whole new set of requirements," Rutstein said.

HP shareholders vote on Tuesday; Compaq shareholders vote on Wednesday.

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