HP/COMPAQ: Channel hit by uncertainty

The reorganization associated with the takeover of Compaq Computer Corp. by Hewlett-Packard Co. (HP) will have a negative affect on some channel partners. Budgets will be cut and some partners may be ditched, analysts said.

"The companies will certainly look to reduce the number of partners. They will determine who the best partners are and what channel programs are most successful. Expenditures toward the channel could be cut in half," said Sami Pohjolainen, research manager personal computing at International Data Corp. (IDC) Europe, Middle East and Africa (EMEA).

Alan Mac Neela, principal analyst with Gartner Inc., agreed.

"I expect there to be some consolidation, particularly at the low-end where distributors are only moving product. At the high-end most resellers and distributors sell both HP and Compaq products and they will continue to do so," he said.

With a 25.8 percent combined market share, HP and Compaq will hold a firm number-one position in the EMEA region.

"They will have much more bargaining power as the largest supplier and will be able to choose who they want to work with. It is difficult to judge which partners will be affected," Pohjolainen said.

With 15,000 layoffs already announced as part of the merger, resellers and distributors risk losing a good relationship with HP and Compaq if their contact person's job is eliminated. Sales people are likely to be the first to go at HP and Compaq, said Mac Neela.

"To establish visibility in these turbulent times, resellers and distributors should establish contact with the most senior executives at HP and Compaq in the country they are in," he advised.

HP and Compaq still have to decide on branding and channel strategy. This uncertainty could spark action by competitors, Mac Neela said.

"The merger creates a tremendous amount of uncertainty. If I was Sun (Microsystems Inc.), I would be calling every HP and Compaq distributor and try to get an exclusive relationship," he said.

The uncertainty is likely to continue for some time, but will sort itself out, said one distributor.

"There is uncertainty that results from the deal, both in short term and in long term. In short term because a lot of people we work with will see a change in their jobs," said Steven Raymund, chairman and chief executive officer (CEO) of IT distributor Tech Data Corp.

"Channel programs will evolve in response to the marketplace, just as they would have if both companies had continued independently," Raymund said.

System integrator Getronics NV, a partner of both Compaq and HP, also isn't worried.

"We take a positive stance towards the merger of HP and Compaq. We expect the cooperation on the worldwide market to be streamlined and intensify," said Getronics spokesman Herbert van Zijl.

In the merger phase, system integrators and resellers will notice slacking service, according to Mac Neela.

"There will absolutely be outages in sales and delivery continuity," he said.

Van Zijl reacted by saying Getronics would make sure that HP and Compaq remain focused.

Tech Data will have "no problem keeping a good relationship with HP and Compaq" as those companies will "continue to work hard, knowing that if they fail today it will hurt them tomorrow," Raymund said.

Tech Data also doesn't expect any problems on the product availability side. "A merger while the market is down has one advantage. There is availability of components," Raymund said.

On a positive note, resellers remain a necessity for HP and Compaq, especially in Europe where the market has its own characteristics in every country, according to IDC's Pohjolainen.

"HP could handle large enterprise customers itself, but needs resellers to handle the small and medium-sized enterprises (SMEs). The SME market is much more volatile and the support and infrastructure cost is significant. It would take HP years to establish an organization to cater to the SMEs," he said.

Mac Neela agreed, noting that HP with Compaq merged could well provide simple hardware maintenance services to enterprise customers, but is not equipped to take on heavy-duty system integration work.

"HP and Compaq don't have the competencies to offer high-end development, integration and outsourcing services," he said, observing that HP and Compaq are far from matching an IBM Corp., Electronic Data Systems Corp., or Accenture Ltd. where services are concerned.

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