Johannesburg, 07 Sep 2001
The announcement of the US$25 billion merger between Compaq and Hewlett Packard (HP) is a good move for both companies. Provided that the merging of the two entities is effectively managed, the combination of their respective strengths will create an industry giant capable of competing anywhere in the world. This is the view of Guy Whitcroft, MD of Tarsus Technologies, a member of JSE-listed MB Technologies, and a distributor of HP and Compaq products.
"Looking at the strengths of the individual companies, it is clear that they dovetail far more than they overlap," he says. "HP is the global leader in printing and imaging, while Compaq is by far the stronger partner in corporate PDAs, notebooks, desktops and Intel-based servers (although HP is stronger in the US retail market). While HP has the leadership position in mid-range servers, the Compaq and HP technologies were starting to merge, with the Itanium chip being based on a great deal of HP`s PA-RISC technology and Compaq having recently sold its Alpha business to Intel. However, Compaq has the clear leadership in storage. At the high end of the market, Compaq`s fault-tolerant Himalayas are the market leaders, while in the growing area of management software, HP`s OpenView product holds the leadership position."
"Both companies have stressed the need to grow the services side of their business, as this is where the better margins lie," Whitcroft continues. "However, they were dealing with a few gigantic players (IBM and EDS, among them) and needed big volumes quickly in order to compete. This merger of their services businesses could give them the scale necessary to compete. The PC business is, globally, causing significant losses in many areas. Combining their operations will not only enable Compaq and HP to regain the number-one spot, but provide them with the volumes and economies needed to make this profitable once again."
Whitcroft points out that the execution of the merger will be the key to a successful combined entity. "Properly managed, I believe we are potentially looking at a new global leader in the IT market," he says. "I also believe that it will accelerate (or even lead to) other mergers and acquisitions, as smaller companies see the need to consolidate or otherwise be forced out of the market."
Although the new company will carry the Hewlett Packard name, there has been no announcement that the Compaq brand will be dropped. "Dropping the Compaq brand would not make a lot of sense as a great deal of the worth of that company is in its brand equity, which is recognised as one of the top 50 brands worldwide," says Whitcroft. "Given Compaq`s strength in the corporate Intel market, I believe it would make sense to retain this brand."
Whitcroft reassures Tarsus customers of "business as usual" for the next few months until the regulatory authorities in the US and Europe approve the merger. "That is likely to take place early 2002, so until then both companies will continue to compete fiercely."
"The bottom line, however, is that this merger bodes well for the end-user as the new company`s economies of scale will ultimately lead to even better value-for-money than today," he concludes.
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