Commentary: HP-Compaq: Buyer beware

By Paul McGuckin, Gartner Analyst

The already controversial merger of Hewlett-Packard and Compaq Computer is in even more trouble--and that means prospective purchasers of both companies' products should be extremely careful.

Growing opposition from the families

	See news story: Compaq preps for life after HP

of HP's founders may delay the proposed HP-Compaq deal or--because timing has always been critical to the deal--even kill it altogether. Gartner believes senior management will likely be seriously distracted by the need to convince other investors to go along with the merger. Management inattention always poses a serious problem, but now with the economy in recession and with both businesses and consumers cutting back sharply on their IT purchases, all vendors should focus on revenue generation and survival.

The need to win over investors, especially sophisticated institutional investors, may also force HP and Compaq to reveal more details of their business operations. This may highlight the supposed synergies between the two companies, but it will also likely expose areas of weakness in their business models and expose them to targeted tactics by their competitors. For this reason, the merger-related problems give HP-Compaq's competitors a significant opportunity to gain market share at the two companies' expense.

Until these problems have been resolved, businesses should approach HP and Compaq products with caution. These products remain safe bets from a tactical standpoint--that is, for initiatives that are either short-term or not mission-critical--as do upgrades to installed products. The problems surrounding the merger will likely also leave the two companies' service and support operations unaffected.

However, long-term strategic commitments to HP and Compaq products carry significantly more risk. Businesses should limit these commitments to product lines that Gartner has already identified as strategically sound:

• HP printers
• Compaq Proliant servers
• HP/UX servers
• Compaq StorageWorks for the midlevel market
• HP XP storage for the high-end market

Businesses can also invest with confidence in PCs and personal digital assistants from either vendor because of minor technical differentiation and rapid product cycles, respectively.

There is a bright spot for HP-Compaq buyers in all this, however. Competitive pressure and the determination of both companies to meet their announced financial targets will make HP and Compaq significantly more open to negotiation. Purchasers should seize this opportunity and turn it to their advantage.

(For related commentary on the strategy and implications of the HP-Compaq merger, see Gartner.com.)

Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.