HP/COMPAQ: Users buoyant about merger

Australian IT professionals expect good things out of the planned merger of Compaq Computer with Hewlett-Packard.

Martin Byrne, CIO for Leaseplan Australia, told Computerworld the corporate market should use this acquisition to its advantage.

"We've been an IBM customer since our company formed in 1988; we're pretty locked in with it as we run its mid-range desktop PCs and servers, but we've always experienced difficulty with its service delivery.

"I think HP wants to take on IBM and we could expect to see some aggressive marketing from HP now."

Byrne said by acquiring Compaq, HP would be "well positioned" as Compaq has some "good, reliable PC and server products".

"I've never found Compaq's service delivery and support on hardware to be of a very high standard."

It seems Byrne is not alone in his estimation of Compaq. Steve Lindsay, CIO for Aussie Home Loans, said: "Based on Compaq's service history, things could only get better. We are large Compaq users. You could say I am looking forward to the merger."

However, Mary Harold, director information systems, SA Department Education, Training and Employment, said the proposed merger is "really regrettable" from the user view in that it reduces competition. "We now only really have Sun, HP and IBM".

HP announced yesterday it proposes to take over Compaq in a stock swap worth about $47.5 billion ($US25 billion). Talks between the companies began 18 months ago.

Under the terms of the agreement, HP shareholders will own about 64 per cent and Compaq shareholders 36 per cent of the merged company. HP CEO Carly Fiorina will become chairperson and CEO of the combined company and Michael Capellas, Compaq's current chairman and CEO, will be president. Four other members of Compaq's current board of directors will join HP's board.

According to CEOs of both companies, enterprise users will have to wait until after the merger is finalised, scheduled for the first half of 2002, to get details on product rationalisation and integration plans. About 15,000 jobs are expected to be cut from the merged entity. Gartner expects several thousands of these will be in the Asia-Pacific region.

Fiorina said there is already a clear understanding of what products are likely to remain and what will be dropped. But "one of the reasons why we will not be making broad announcements [relating to product changes] is because we need to have transition plans in place".

Fiorina said PCs would remain an important part of the new company's business. But the new company will have to face an important issue: how to merge their two different PC divisions. The two companies differ on their manufacturing models with HP outsourcing while Compaq worked on a build-to-order model.

Company executives also said the new HP will aim to increase its presence and cachet in the enterprise space for high-end computing products.

Commenting on the merger, Merv Langby, IDC Australia's chief analyst, services, said: "Based on HP's comments, services is the key part of the rationale behind the acquisition. HP made it clear long ago, with its E-services 2.0 global launch, that service is a key part, if not the key to its future."

Langby said this was most notably seen in HP's pursuit of PricewaterhouseCoopers. In September last year, HP, in an effort to expand its service offerings, attempted to acquire the consultancy. The deal, valued at between $US17 billion and $US18 billion, fell through after HP withdrew its offer in November due to its dismal third-quarter earnings.

"When the PwC deal didn't come to fruition, it sharpened [Hewlett-Packard CEO Carly] Fiorina's intent in that direction," Langby said.

PricewaterhouseCoopers also declined to comment on HP's acquisition of Compaq.

At press time it was not known how the merger would affect HP's Australian operations.

Adrian Weiss, marketing communications manager for Hewlett-Packard Australia, said, "We have no comment about how this move will affect Australia and don't expect to be making any comment for a few days."

Compaq Australia's corporate communications manager also declined to comment on the merger.

Earlier this year, Hewlett-Packard acquired the IT services and equipment leasing firm Comdisco for $US610 million in cash. Compaq has also been on an aggressive acquisition trail in recent years, acquiring Digital Equipment Corporation through a $US9.6 billion deal in early 1998 (arguably for DEC's enterprise services capabilities), after buying Tandem in 1997 for its fault-tolerant enterprise server platform.

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