HP/Compaq: Experts lay down roadmap

The IT industry has reacted with scepticism and amazement to Hewlett Packard's (HP's) planned mega-merger with Compaq, with customers unclear on which product lines will remain and which will face the axe.

The companies are keeping quiet on product roadmaps until their integration plans are complete, but vnunet.com and its sister publication Computing have been reading the runes to see which lines will emerge from the other side.

PCs and PDAs

HP chief executive Carly Fiorina says that Compaq's corporate PC business is more profitable than HP's, but thinks HP's consumer PCs are superior. Analyst Meta Group agrees.

Compaq's iPaq pocket PC sells more than HP's rival Jornada, and Meta expects it to be the preferred handheld brand, although Gartner says the two may need a new brand by 2003 as Compaq may not have the design strength to keep it going.

Computing's tip: HP for consumer PCs, Compaq for corporate PCs, iPaq for handhelds.

Servers

Both companies are committed to Intel's Itanium 64-bit processor for a unified server range.

Fiorina points to Compaq's better support capability for Windows-based servers, where HP's market is slowing as its partner's accelerates. She puts HP ahead in data centre and Unix systems. Compaq handed its Alpha processor to Intel in July, so HP's Superdome is set to be the focus for high-end Unix servers ahead of Compaq's Alphaserver.

But Gartner analyst George Weiss expects "turf wars" before a decision is made. Compaq's fault-tolerant Himalaya servers have no HP rival, so are likely to survive.

HP's rivals hope to benefit from potential confusion, but Meta analyst Brian Richardson expects any advantage to be short term. "Near term, this acquisition makes Sun Microsystems and Dell look more focused. However, this will be fleeting. Longer term, the new HP marginalises Sun as too small with no credible Intel-based offerings," he said.

Computing's tip: HP for Unix servers, Compaq for Windows servers.

Printers

HP's printer range is one of the company's most profitable businesses. Some experts question whether US and European regulatory authorities will have concerns because Compaq is one of the largest distributors of rival Lexmark products. But HP's pre-eminence in printing means its products will dominate the new company's offerings.

Computing's tip: HP printers too good to ditch.

Software

Fiorina says the merged company will be Microsoft's largest partner, and the commitment to Windows will continue.

HP's version of Unix, HP-UX, will remain and be improved with Compaq's expertise in clustering technology from its Tru64 Unix, says Fiorina. Meta expects the finished product to be 80 per cent HP-UX and 20 per cent Tru64.

HP's OpenView systems management software and Bluestone application development platform will continue.

Computing's tip: HP's software to dominate, with added Compaq expertise

Services

The new HP will be the third largest IT services company, and its success will be critical to Fiorina's aim to compete with IBM Global Services.

Gartner analyst Eric Rocco says the combined capabilities provide a "golden opportunity to capitalise on the benefits of massive scope and scale". But he points out that there will be no significant presence in high-growth areas such as business consulting, development and integration. Fiorina says people discount support services too quickly, where the two companies make $350m operating profit per quarter.

Computing's tip: A giant in infrastructure services, partnerships to compete with IBM in business consulting.

Will it work?

Initial analyst reactions to the unexpected merger are negative, but Fiorina hopes the scepticism is a knee-jerk response as she embarks on a tour to persuade investors to back the deal. The next 12 months will be critical as shareholders and regulators form their opinions. But Fiorina stresses that the merger is a long-term move, and expects some short-term loss of market share.

Computing's tip: The IT industry has become obsessed with Wall Street short-termism. If HP and Compaq can resist the sceptics and push the deal through, in five years people will look back and wonder what all the fuss was about.

Additional reporting by Ian Lynch, vnunet.com