Post-nuptial Blues

Is Carly Fiorina, HP’s chairman and CEO distracting people

from the fact that HP isn’t doing very well globally? Yes, if Roger Kay of the

International Data Corp (IDC) is to be believed. In another hard- hitting

reaction, Gartner feels that HP’s decision to buy Compaq is likely to benefit

only its competitors. According to a Gartner press release on the merger, ‘‘HP

and Compaq have not made a convincing case for this defensive deal. Enterprises

should expect to work in the dark while they wait for the deal to win approval.’’

Gartner analysts also suggest that except for the claimed cost savings of US$2.5

billion by 2004, which is just 3% of the combined cost for the two companies,

the companies have failed to give adequate reasons to justify the risk of a

merger of this scale.

While IDC agrees that the size of new HP would definitely

help in situations like negotiating better rates with suppliers, it questions

the power of size alone. According to IDC, the new entity lacks both the depth

and the width of IBM, which is far strongly positioned–be it in technology,

software or services.

According to IDC, the server segment is one of the few areas

in which the HP-Compaq combine can play an important role and will have a lot to

look forward to. In fact, it suggests that Compaq and HP with strong positioning

in the mid-range category will give a tough fight to both IBM and Sun. Compaq’s

extensive installed base of Intel servers would be quite a boon to the new

set-up in the servers category.

In the PC segment, it predicts that the merged entity may

move ahead of its competitors–Dell and IBM both in the worldwide and the US

markets. The situation may not be very different in India, except that instead

of Dell, the new HP would have HCL at the number two slot in the country.

However, being nimble is far more important in the PC business than being large

and on this front, analysts feel that the HP-Compaq combine does not stand to

gain much.

‘‘If costs can be driven down, it would mean a lot for

the merged entity particularly because in the PC area there is very little

product differentiation possible,’’ IDC says. In India this would mean that

their prices would become more competitive which would help in garnering a

greater share of the market. A single factory, improved logistics, a

strengthened distribution system and better negotiation with suppliers are some

of the areas that could help the new entity cut costs.

However, IDC is skeptical about the how the HP-Compaq combine

would fare on the services front. While there is no doubt that profitability as

well as growth for a vendor lies in the services area, it is also a fact that HP

and Compaq are essentially product companies with limited services offerings.

This situation, IDC suggest, is unlikely to change with the merger. As a matter

of fact in India, both have focussed on the sale of hardware. Under such

circumstances, it would be difficult to believe that the two together can

provide seamless integrated solutions to customers and address new markets.

Interestingly, while during year 2000 IBM had to its credit eight out of the top

20 $ 1 billion plus services deals worldwide, Compaq and HP have none. IBM is

also very strongly perched in the eBusiness arena and IDC feels it would be

difficult for anyone to disturb that position, including the HP-Compaq combine.

IDC also cautions that like with all acquisitions and mergers

it would be a challenging time ahead for both HP and Compaq in terms of

streamlining structures, product lines, process, and most important of all,

aligning the two cultures.

Says Michael Murphy, editor of the California Technology

Stock Letter, ‘‘There is an old rule of life that the best mergers are done

by two companies that are each No. 1 in their businesses. But if it’s two

weaker companies, such as the HP-Compaq pairing, it’s usually just a prelude

to disaster.’’

However, not every reaction is as cynical as the one above.

Despite the chilly reception, the $21-billion acquisition plan, experts argue,

could be the catalyst that reshapes the industry into far fewer and larger

players.

The announcement, many argue, represents a watershed event

for the technology industry that is facing the same kind of historic pressures

long seen in the so-called old-economy industries such as aerospace, autos and

steel. Perhaps something like the Daimler- Chrysler merger in 1998 that led to a

domino effect that reduced the number of independent auto-makers.

Shubhendu Parth In New

Delhi