HP reinvents itself

With the beginning of the new Hewlett-Packard on 7 May, the combined firm hit its deadline – but only after a protracted, public debate about the merits of the deal, characterised by bitter exchanges between HP and its dissident director Walter Hewlett.

Now, with the new HP finally here, doubts over the plan remain, but it is clear that the combination of HP and Compaq offers the closest challenge to IBM’s all-round strength in the IT industry.

Few firms even come close: Fujitsu Siemens has a broad, global portfolio but others are either limited by geographical reach – such as NEC, which is far stronger in Asia than in Europe and the US – or are largely confined to products or services alone.

Now that the catcalls have died down, the new HP emerges as a firm able to offer a broad array of computing hardware, software and services.

As HP outlined at the time of the merger agreement, the deal is about adding scale and cutting costs. “The combined company will have [number one] worldwide revenue positions in servers, access devices and imaging and printing, as well as leading revenue positions in IT services, storage and management software,” it said in a prepared statement.

‘The merger is expected to generate cost synergies reaching approximately $2.5bn annually and drive a significantly improved cost structure. The new HP would have… annual revenues of $87.4bn and annual operating earnings of $3.9bn. It would also have operations in more than 160 countries and over 145,000 employees.’

But will the complexities and politics familiar from so many other mergers haunt HP and lead today’s HP and Compaq users to rival suppliers? As precedents, Mitsubishi’s acquisition of Apricot led to the UK’s firm’s eventual disappearance, and Fujitsu eventually subsumed the identity of ICL.

The early indications are that even if the majority are unimpressed by the merger, buyers are in no hurry to walk away. Instead, polls suggest buyers will give the new HP a chance before making strategic decisions one way or the other.

A February survey of over 1,000 IT decision makers by research group Ziff Davis Market Experts found that many HP and Compaq customers have frozen purchasing plans while the merger process advances. That is good policy, according to experts, who add that customers should demand guarantees of service levels and product lifecycles from HP.

What are users afraid of? Above all, the respondents to the Ziff Davis research feared that HP’s managers would be distracted by the merger, but they were also concerned about issues of migrating between suppliers, and problems caused by discontinued products.

A UK survey conducted in July last year by WStore, a reseller for HP and Compaq, found that about a quarter of respondents expressed concerns over the merger. Leading their list of worries was product line integration – 14% – and service and support – 9%.

If HP flounders then there will be no shortage of suppliers willing to embrace disenchanted users. Over half of respondents to the Ziff Davis poll saw Dell as a likely fallback for PCs, while 35% viewed IBM as an alternative services supplier. EMC and IBM lead the way in storage and management software alternatives. The WStore survey found that that 6% of regular HP and Compaq buyers were considering purchasing from other suppliers.

The new HP has been criticised, but it has supporters, many of whom see the agreement as a realisation that in a maturing industry, scale is critical to the future of IT suppliers. Terry Shannon, publisher of the Shannon Knows HP Computing online newsletter, has written that “when all the facts are dispassionately considered, the merger makes pretty good sense”. Computacenter chief executive Mike Norris is also supportive, and HP has veterans of other mergers, including Boeing’s acquisition of McDonnell Douglas and Vodafone’s acquisition of Airtouch.

The new HP has tremendous products, engineering capabilities and some depth in consulting skills. Its challenge now is to translate the best of these offerings for the market.