HP eats Compaq and becomes a titan

Palo Alto (USA) – With a financial operation that boasts few precedents in the IT sector, Hewlett-Packard is preparing to acquire, for 25 billion dollars, the historical rival Compaq.

The result of this merger, which should be completed by the first half of 2002, will be a giant capable of placing itself just below the giant IBM in terms of productivity and profitability.

The new company will be 64% owned by HP and 36% by Compaq and will be able to generate $ 87 billion in revenue per year, making it the largest PC manufacturer (thus surpassing Dell, the current number one) and in that of servers, hand held, printers and devices for image acquisition.

The headquarters of the company will remain Palo Alto, the headquarters of HP, while Houston, the headquarters of Compaq, will become a center of research and development.

Carleton Fiorina, chairman and CEO of HP, and Michael Capellas, chairman and CEO of Compaq will sit in the command posts of this giant: the former will retain his current positions, while the latter will become president of the new entity.

“This is a decisive move to accelerate our strategies and become successful by offering even better value to our customers and partners,” Fiorina said in a statement: “In addition to the obvious strategic benefit of merging two companies and two families of highly complementary products, we can create significant value for our shareholders through significant improvements in cost structure and access to new emerging opportunities ”.

However, not all analysts seem convinced of this “high complementarity” of which Fiorina speaks: in truth, many argue, the two companies seem to have several operating units that risk overlapping: for example, the computer sector (PC, notebook, server ) and the one related to Unix systems.

It is not yet clear how these common branches of the two companies will be matched: what many expect is that the merger will almost inevitably lead to staff cuts, especially in some areas of activity.

The four key operational fields of the new HP will be managed by as many divisions: one dedicated to printing and image acquisition devices; one dedicated to access devices (PC and hand held); one dedicated to the IT infrastructure (servers, storage and software); and one dedicated to services (consulting, support and outsourcing).

“We are creating a new type of industry leader, founded solely on customer satisfaction, top-notch technology and the best products and services,” commented Capellas: “In stark contrast to our competitors, we are committed to leading the industry towards open architectures that can unite the market and create the conditions for interoperability, which reduces complications and costs for our customers. With this move, we will change the basis for industrial competition ”.

With this marriage, the two companies hope to cut costs and save on many fields of activity, such as administration, procurement, production and marketing. The new giant will try to increase profit margins by also focusing on a more aggressive strategy in the field of direct sales of PCs, which has always been Dell’s privileged field of action.

The PC market is a market that, especially in the last year, has been particularly affected by the crisis that has affected the entire IT world. With their merger, HP and Compaq will therefore try to cope with the substantial losses suffered by both in the last four quarters, facing competition that will have Dell and IBM as main players. Gateway, which has recently made drastic staff cuts, seems to have lost the vital drive that had led it to leave the American borders.

The strategic relationships that Compaq had recently formed with Intel, and which allow the latter to use Alpha technology in its chips, will play an even more important role now that Compaq will get married with Intel’s biggest partner, HP. the same one that co-developed Itanium’s IA-64 architecture.