HP and Compaq Propose Merger

In a stunning move last night Hewlett-Packard announced it would acquire Compaq Computer in a stock swap transaction worth an estimated $25 billion. If the merger is completed as expected, the resulting computer company would have revenues rivaling IBM, currently the world's largest. The merger of the two companies could create stronger competition for long-time competitors IBM and Sun Microsystems in the midrange and high-end server markets, and for Dell and Gateway in PC and Industry standard server markets.

GET TO THE CUSTOMER FIRST - Don't allow your competition to position Compaq negatively!

The bad news - Competitors will attack Compaq and spread FUD (Fear, Uncertainty and Doubt)

They will:

  • Claim this will result in three years of merger confusion.
  • Claim that Carly Fiorina didn't know what to do with HP and now will destroy Compaq.
  • Use this announcement to reaffirm that "Tru64 Unix and OVMS are dead," and will force users to migrate to HP-UX
  • Suggest this was an "easy way out" of a desperate financial situation for both companies.
  • Claim it will be years before a unified enterprise solution is developed by the combined entity.
  • Claim that the merger does nothing to fix problems in services and channel strategies.
  • Claim this announcement does nothing to affect loss of PC market share.

The good news:

  • Both Compaq and HP will leverage resources and technical synergies.
  • The combined entity will have the largest and strongest partner base in the world.
  • The new company will have Michael Capellas as its president.
  • The merger will leverage combined intellectual property; HP will leverage Compaq storage technology, Compaq will leverage HP Itanium compiler technology, HP-UX on ProLiant, Compaq Tru64 64-bit application base, HP printing and imaging, etc.
  • The sales field setup is similar between the two companies and should merge relatively easily. While any merger has challenges, the result is execution on the vision. The sales field has to execute first. Having similar makeups will be a huge advantage.
  • The resulting company will have definitive market superiority in the HPC market of nearly twice the nearest competitor's.
  • Compaq's Linux strategy will give HP a boost in the Linux market, and IBM could lose the Linux race, because Compaq outships IBM in Linux.
  • HP has a solid reputation in enterprise-class customers. The combined company can and will leverage this strength.

This merger will still leave HP free to concentrate on Compaq core competencies,

  • Industry-Standard and leading systems engineering
  • Fault Tolerance, Clustering
  • Interconnect technology
  • Interoperability (systems and storage)
  • Solutions and Services
  • High performance systems
  • Providing a complete product line

Customer benefits:

  • The best 64-bit path to IA-64 for both performance (over RISC), and lowest cost.
  • Widest and best-supported O/S options with OVMS, UNIX (Tru64 & HP-UX), Windows XP and Linux on a single architecture.
  • High-performance solutions based on industry standard economics.
  • Best partnership commitments from Oracle, Microsoft, Intel.
  • Global support coverage
  • Immediate access to IA-64 solutions via HP.
  • Faster execution of IA-64 implementation for OVMS, UNIX and NonStop Kernel solutions.
  • More and stronger ISV relationships, with the customer being the primary beneficiary.

Responses to expected FUD:

FUD

Response
There will be three years of merger confusion. Historically mergers take three years to complete. However, Carly Fiorina has committed to accelerate the initial phases and most of the transition will be over in 2002. Because of current market conditions and stiff competition, the timing is optimal to make tough decisions. Both companies recognize the need for swift execution, if the plan is to be a success. Compaq also has the advantage of already completing a successful merger. This will make it easier to execute.
Carly Fiorina will destroy Compaq. Ms. Fiorina has had challenges with evolving HP away from its traditions. A lot of it is due to the legacy of the previous management teams and the euphoria of an explosive market hiding the real problems. Additionally, she tried to fill both roles of operations and leadership spokesperson. At times she has been criticized for lack of effective operational management. Michael Capellas, who will be president and effectively COO, fixes that problem. His ability to execute operationally is superior in comparison with other senior executives. As a team they have the know how to accomplish this monumental task.
Tru64 UNIX and OVMS are dead. Tru64 and HP-UX both have huge strengths in the UNIX market. CompeteNet believes that both products have attributes which can be leveraged into a superior product. Whether both products survive independently or get merged to form one superior UNIX OS both will see advantage from the other. Plus, HP will get the wisdom of Tru64 with the largest 64-bit application base to the mix. OVMS will continue to be a differentiated product and CN does not expect any changes.
This was the easy way out of a desperate situation. This is not going to be easy. Mergers are a natural process in a maturing industry. The largest players win. The resulting merger between Compaq and HP will result in a company that can effectively challenge IBM's dominance - and provide customer benefit through effective competition. The competitors that would suggest this is the easy way out are really the ones who face a problem. Sun and Dell have to be worried about the outcome.
It will be years before a unified enterprise solution is developed. The enterprise solutions are already here. Three years from now the technology will be vastly different than it is today. The HP-Compaq merger actually provides the customer with a guaranteed upgrade and migration path to the technologies that will offer the best price / performance and ROI going forward. The relationships with partners such as Intel, Microsoft, Oracle are unmatched by any other vendor. For these vendors HP-Compaq are the drivers.
The merger does nothing to fix channel and services problems. Channel problems are endemic to the industry, nobody is immune to them. The merger will undoubtedly cause the channel to reassess their loyalties and positions but it also simplifies their choices. The result will be additional opportunities for the channel to sell added value for a diverse HP-Compaq product line.

HP-Compaq services will combine to become the 3rd largest, with about 65,000 consultants, outsource and support personnel. The challenge will be to increase the technology & business consulting services component to be more in line with the competition's (IBM). Sun will be next place with approx. 7,500 support and Dell with far less.
The merger does nothing to address loss of PC market share. Not true. The combined HP-Compaq US market share for PCs will be 22%, close to Dell's market-leading 24%. Dell recently overtook Compaq in global market share with 13.4%. Together with HP, the total global Compaq market share for PCs will lead with 19%. (Source IDC Q2, 2001, units.) Both companies carry a strong brand in the consumer and business desktop space. As Microsoft XP starts distribution the PC market should improve, and HP-Compaq is in the right place to succeed. Both companies are committed to growth at the enterprise level and have demonstrated that they value profitability more than market share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   

|Contact us|

|Search|

|Site Map|