HP and Compaq to merge

HP seems to be the winner: the new company will be called Hewlett Packard, and top managers from HP will dominate the new giant. It is unclear whether the Compaq brand will survive.

Carly Fiorina, chairman and chief executive at HP, will be chairman and chief executive of the new company. Michael Capellas, chairman and chief executive at Compaq, will be president, a lower-ranking post.

The move will create turbulence in the already unsettled IT industry and could create a domino effect, with other major players looking to make similar acquisitions to stay afloat. But it will also create an opportunity for rival suppliers such as IBM and Sun Microsystems to exploit the inevitable problems involved in giant mergers.

Analyst Ovum Holway was scathing in its assessment of the deal, pointing out that both companies ‘are essentially infrastructure support service providers, with little outsourcing and few offerings further up the value chain to offer end users’.

‘Putting together two ailing PC and mid-range manufacturers does not make an IBM,’ the analyst told its clients on this morning.

‘This is great news for IBM, and indeed Sun et al. They will be able to pick off the market while HP and Compaq are distracted trying to get to the altar. We think there is a real risk the two will just implode leaving, perhaps, a single PC and mid-range system supplier much the same size as either HP or Compaq,’ Ovum Holway added.

Jobs will be lost as HP restructures itself into four operating units: a $23bn IT infrastructure business to be led by Peter Blackmore, executive vice president of sales and services at Compaq; a $15bn (Pounds 10.32bn) services business with 65,000 employees to by led by HP services president, Ann Livermore; a $20bn (Pounds 13.76bn) imaging and printing franchise to be headed by HP president of Imaging and Printing systems, Vyomesh Joshi; and a $29bn (Pounds 19.95bn) access devices business to be led by Duane Zitzner, president of systems at HP.

HP chief executive Carly Fiorina said in a statement: ‘This is a decisive move that accelerates our strategy and positions us to win by offering even greater value to our customers and partners. At a particularly challenging time for the IT industry, this combination vaults us into a leadership role with customers and partners. Together we will shape the industry for years to come.’

Today’s news follows HP’s failed attempt last year to buy PricewaterhouseCoopers’ consultancy wing. That deal was scuppered by plunging share prices which left HP unwilling to meet the $18bn (Pounds 12.38bn) asking price.


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