HP/Compaq: Users will have to wait on HP-Compaq merger details

Enterprise users will have to wait until after the proposed $US25 billion merger of Hewlett-Packard and Compaq is finalised next year to get details on product rationalisation and integration plans, according to the CEOs of both companies.

          Enterprise users will have to wait until after the proposed $US25 billion merger of Hewlett-Packard and Compaq is finalised next year to get details on product rationalisation and integration plans, according to the CEOs of both companies.

          Responding to questions about the surprise merger announcement by the two companies late yesterday, HP CEO Carly Fiorina and Compaq CEO Michael Capellas said that the merger would result in product lines getting dropped because of overlap.

          Specifics about where those cuts will take place, though, will only come later, after a careful and thorough evaluation, Fiorina said.

          "It is one thing to rationalise product lines on paper and another thing to build transition lines" and migration plans that protect customer investments, Fiorina said.

          There already is a clear understanding of what products are likely to remain and what will be dropped, Fiorina said. But "one of the reasons why we will not be making broad announcements [relating to product changes] is because we need to have transition plans in place," she said.

          Both CEOs also warned investors not to expect any revenue gains from the newly merged company in the near term. "It is not our intention to lose momentum," Fiorina said.

          Nonetheless, the companies said they expect a slight revenue decline in their combined sales for 2002 and 2003. HP's chief financial officer, Robert Wayman, predicted the decline would be less than 5% each year.

          The greatest opportunity for synergy between the two companies will be at the high end, where server and storage products from both companies complement each other nicely, Capellas said.

          But the merged entity, to be based in Palo Alto, California, will have its work cut out in the PC market and the low-end, he said.

          Fiorina said PCs would remain an important part of the new company's business. But the new company will have to face an important issue: how to merge their two different PC divisions.

          While HP outsources all of its manufacturing, Compaq has been more focused on a build-to-order manufacturing model. At the news conference, the companies said they will use the HP model.

          Company officials said the merger will also mean about 15,000 job cuts. Currently, the two companies have a combined total of about 149,000 employees. After the merger, that figure will be around 135,000 Capellas said.

          Users, who heard of the planned merger today, were uncertain what to make of it.

          William Shreve, a systems manager at Provident Bank in Cincinnati, said the merger probably won't have any negative effects on the regional bank, which exclusively uses about 3000 HP desktops and about 200 Compaq servers.

          "I don't think we'll have any problems," he said. "I think it probably can be good. Both companies are struggling."

          But Glenn Knott, the information systems manager at Graham Hospital in Canton, Illinois, said the hospital was affected previously by the merger of Compaq and the former Digital Equipment Co. The hospital still uses several DEC Alpha servers, but was recently told by Compaq that support for the servers would be available for only another couple of years, leaving users a bit worried, he said.

          This latest deal could have its own impacts, Knott said. "I'm not sure how this will affect us right now," he said. "I'm kind of uneasy. I guess we'll have to wait and see."

          Talks between the two companies began 18 months ago, picking up speed as time progressed and officials at both companies became convinced of the success of a merger.

          Asked about any antitrust issues brought on by the merger, Fiorina said officials have been looking into those issues for weeks. She said the companies would cooperate with an expected antitrust probe by the European Union.

          "We intend to be very cooperative with the EU," she said. "We intend to make sure this [merger] is pro-competition and pro-customer." Fiorina said the companies have not yet had any discussions with regulators, either in Europe or the US.

          "Until we have full regulatory approval [both companies] must continue to compete as competitors in the marketplace," Fiorina said.

          According to IDC in Framingham, Massachusetts, Dell had 13.1% of the global PC market in the second quarter of 2001. Compaq was number two with 12.1%, followed by IBM with 7.2% and HP with 6.9%. The merger would make this the largest PC company in worldwide market share in terms of number of units shipped.

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