HP and Compaq: What the analysts think

NEWS HP's $25bn merger with Compaq has left analysts questioning the motives behind the deal with many claiming it is a branding rather than technology deal. With both companies boasting extensive PC, server lines and IT services the overlap means many products and jobs will disappear. Speculation is growing over products marked for the chop, a list which could include HP Jornada, Compaq's Desktop Pro and many server lines. Mike Thompson, analyst at Butler Group, believes it's really a case of the big just got bigger: "This is not a merger - Compaq just got eaten. It has good distribution channels and clients but the product synergies are more problematic," he said. However, HP still has a fight on its hands if it wants to compete with IBM Global Services. Many analysts agree that HP will not better itself through the inheritance of Compaq's consultancy division. Martha Bennett, an analyst at Giga Group, said: "Consulting is the one area where we don't think this deal will give HP what it expects. We are looking at a company that has already tried to break into the territory of IBM and the combination of HP and Compaq puts it nearer the league of IBM but not into the league of IBM's Global Services division." HP's much trumpeted failure to take over PwC's IT infrastructure division last year left the company out in the cold. The newly formed HP board has also caused much discussion amongst the analyst community with many predicting that Compaq CEO Michael Cappellas may leave in the near future. The danger signs are already there, warned Giga's Bennett: "HP's Carly Fiorina is very much a one woman show. It could be that she is trying to do too much as a single person, Cappellas might start issuing statements to help her out and that might be seen as interfering and won't go down too well," she said. Jonathan Eales, Open Systems marketing manager at Bull I&S and ex-Compaq employee, said that he wouldn't be surprised if Capellas walked. "In Fiorina HP has a visionary and in Capellas they have a good operations man but the question is can he work under that arrangement," he said. Another alternative would be for HP to focus on volume and value markets, said Phil Dawson, analyst at Meta Group. This would see Compaq's Proliant range taking the lead in volume sales while HP's 9,000 server would be marketed towards value customers. HP's lower end PC servers have recently been receding into the distance.