HP/COMPAQ: Analysts, users said firms better together

As the shareholder vote on the proposed US$22 billion merger between Hewlett-Packard and Compaq draws near, an increasing number of analysts believe both companies' competitive chances are much brighter by merging than if they were to remain separate.

HP figures to play the more dominant management role between the two companies and, in turn, figures to be the most crippled if the deal fails to go through based on next Tuesday's vote. The company does have its profitable printing, imaging, and services businesses to contribute to the merger, but its servers, desktop PCs, and handheld devices are either losing market share or have slipped into second tier status.

"From HP's perspective, you have to look hard at what the alternative is to merging. Without Compaq, HP will devolve into mediocrity. They have for years subsidized their computing businesses with printing and imaging and they are likely to cease doing that," said Charles Rutstein, research director of infrastructure from Forrester Research Inc. in Cambridge, Mass.

Not only would HP's computer platforms be left vulnerable if the two companies fail to merge, but with the bloody dog fight that has been waged between the warring factions, headed by HP's CEO Carly Fiorina and Walter Hewlett, most think the deep wounds inflicted by the political battles would not heal for quite some time.

"For HP the deal not going through would be more difficult. It would then have a fractured board and the struggles for control of it, along with the question of whether Carly [Fiorina] would still be able to lead the company," said Crawford DelPrete, senior vice president in charge of hardware research for IDC in Framingham, Mass.

On the flip side if the merger does go through, some corporate users who have invested in either one or both companies' desktop and server products are anxious about whether their mission-critical platforms will be selected for extinction.

Some users also feared that HP's research efforts could be curtailed as part of the deal, something they believe has been an important strength of the company over the years.

"Despite all the problems they have, we have always looked at HP as an innovative company and would hate to see that go away. It would be a shame to lose that innovative edge because they are trying to make themselves into something else," said Frank Petersmark, vice president of information systems with Amerisure & Co., a large regional insurance company in Southfield, Mich.

Some analysts believe that, at least for the short term, the combined company would support both proprietary Unix-based environments. They would put off decisions on which one to lead with until they could piece together a technical strategy that allows one platform to seamlessly exploit the advantages of the other, or integrate complimentary capabilities from one to the other.

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