Tech Industry

Commentary: HP-Compaq server synergy

The HP-Compaq deal seems to make sense in at least one area: consolidating the two companies' respective server designs and strategies.

By George Weiss, Gartner Analyst

Hewlett-Packard's announced intention to acquire Compaq Computer has produced a flood of mostly negative reviews.

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Services, servers to challenge HP, Compaq
But should the deal go through, it seems to make sense in at least one area: consolidating the two companies' respective server designs and strategies. Both companies are moving to a single mainstream technology based on the Itanium processor family. And both have significant investments in open systems such as Unix and Linux.

Furthermore, both companies have complementary constituencies and strengths. Compaq's expertise in telecommunications, high-performance computing and fault tolerance for mission-critical businesses matches well with HP's knowledge of enterprise resource planning and Oracle and SAP systems. According to Gartner Dataquest, the new combined company could vault to a market share lead (based on 2000 shipment revenues) of 28 percent vs. IBM's 25 percent and Sun Microsystems' 18 percent. The share would be even more compelling in the Intel processor segment.

That doesn't mean there aren't potential problems. The joining of two huge companies that were former competitors will produce many friction points. For example, HP's Superdome vs. Compaq's AlphaServers, HP-UX vs. Tru64, Himalaya, HP3000--and the list goes on.

The new HP-Compaq would have to worry about customer loyalty, protecting its investments and minimizing the costs of migrations and upgrades from both its former incarnations. In addition, it would have to persuade the financial and IT markets that there's more to gain from a combined entity than from keeping the two companies separate.

Toward that end, Gartner believes that HP CEO Carly Fiorina and Compaq CEO Michael Capellas must address not only the external organizational issues of a merger, but also the internal migration, consolidation and integration issues that existed in each company individually.

Overall, that means that HP would dictate the design of enterprise servers, resulting in the faster extinction of the AlphaServer and in Itanium processor family upgrades. Compaq would drive Proliant branding in the midrange, sacrificing the HP NetServer line. System software battlegrounds would sacrifice Tru64 to HP-UX but would attempt to salvage Tru64 clusters.

New developments and announcements by both companies in the regulatory review period are likely to fall victim to customer uncertainty and stall marketing efforts. The longer the regulatory review, the more harmful to strategic IT planning decisions and HP's and Compaq's efforts to get off on the right foot.

Unless HP and Compaq can assure customers of investment protection and of long-term viability that's compatible with cost-cutting and consolidation, Gartner believes that the new HP will likely struggle for at least three years after becoming a legal entity.

(For Gartner's assessment of HP's plan to acquire Compaq, 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.