No time left means no time like now

And so the worm turns. The only surprise about the proposed merger between Hewlett-Packard and Compaq is the timing.

And so the worm turns. The only surprise about the proposed merger between Hewlett-Packard and Compaq is the timing.

The event itself has been a foregone conclusion for the better part of three years. Ever since IBM began focusing its efforts on services and Dell simultaneously reinvented the PC business model by developing unrivaled build-to-order capabilities, HP and Compaq have been on the run. The only question that remains is, Does this merger change any fundamentals for HP and Dell? Or does it merely buy more time for a combined entity that must still cope with the thousands of feet IBM has on the street and the manufacturing prowess of Dell?

On paper, the merger looks solid. Compaq brings extensive experience and a strong track record in PC innovation, coupled with a credible service organisation the company picked up through its acquisition of Digital a few years back. Coincidentally, HP is working closely with Intel on next-generation 64-bit processors, which are expected to supplant the company's PA-RISC line.

HP is a credible player in the datacentre, which despite all the years of trying has eluded companies such as Compaq that relied heavily on Wintel architectures. Ironically, Compaq's only significant presence in the datacentre came through its acquisitions of Digital and Tandem. HP's other assets include a robust printer and imaging business and a solid enterprise representation as the most viable Unix alternative to Sun.

So why merge now -- why not last year, or the year before? Granted, the current economic climate makes executives more amenable to common sense, but other factors must be at work to make a proposed merger worth more than the sum of two struggling parts.

The answer lies in the emergence of web services and the expected impact of utility models on the systems business in general. Most of the revenue in the services space today is derived from relatively low level point-to-point application integration projects.

But with the emergence of web services, a lot of the work will simply disappear because the internet itself will be the integration platform. Companies such as IBM, PricewaterhouseCoopers, Accenture, KPMG and EDS will need to focus more of their efforts on value-added business process integration -- not loads of overpaid college kids who write rudimentary code. As with the introduction of all disruptive technologies, this creates an opportunity for new players to move quickly before the established players can react. If HP is quick to leverage Compaq's services arm, it could be a winning move.

At the same time, the long-term trend in the system business is toward a utility-based pricing model, in which customers pay for access to compute cycles hosted by vendors such as IBM, EDS and HP. To compete in any utility-based business, scale is everything.

So unless HP merges with Compaq, neither company will be able to generate the economic efficiencies needed to compete in a year marked by emerging business models.

When you get right down to it, neither company has a choice -- regardless of what Wall Street thinks. They can die a slow agonising death while they watch the rest of the industry pass them by, or they can combine their efforts to reinvent HP at a time when every other company in this industry has to cope with the same need to reinvent itself

Vizard is editor in chief of Infoworld (US). Send email to Michael Vizard. Send letters for publication in Computerworld NZ to Computerworld Letters.

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