What will the HP/Compaq merger bring?

Hewlett Packard (HP) sent shock waves through the industry yesterday with the announcement that it is to buy Compaq Computer for $25bn.

In the largest take-over the computing industry has seen to date, HP's acquisition will create an IT giant with annual sales of about $87bn and current assets of over $55bn.

The merged company, which will keep the HP brand, will be run by HP's Carly Fiorina as chairman and chief executive. Current Compaq chairman and chief executive, Michael Capellas, will be made president of HP.

Fiorina ignored the question of overlapping product lines, saying that the firms had "complementary" technologies. However, she admitted that the deal would lead to a dramatic cost cutting programme. "There are significant cost structure improvements and access to new growth opportunities," she said.

Industry experts predicted that these "cost structure improvements", which have been earmarked to be around the $2.5bn mark, will lead to the loss of at least 14,000 jobs from the combined workforce of more than 145,000.

"You can't expect to have a merger like this without losing some people. You could even expect to lose some manufacturing plants too. The losses won't be in the services division but in other areas," Robin Bloor, founder of analyst company Bloor Research, told vnunet.com.

Bloor added that the acquisition would change the competitive landscape for the whole IT industry, but that "the question is whether the joint entity will be a player in the server market. The companies have got to get their act together quickly to be a competitor."

"Sun Microsystems is going to have a new headache in the server space, going up against a more rationalised competitor. This merged entity is sitting right on Sun's doorstep and will be a big concern for the company. The move could also give Dell some pause for thought, but Dell can rely on the fact that it has the capability to bring product to market," he said.

However, Bloor did not consider that the HP/Compaq giant would be a threat to IBM. "IBM, on the other hand, shouldn't be too concerned about the move. It shouldn't be worried about competition in the services space. Initially, the joint company isn't a threat in the server space, particularly not the high end, although who knows what the joint companies are going to cook up?" he asked.