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
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.)
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