Round 'em up and head 'em out

There was a cow hide-covered office seat in the showroom of Gregory Chairs, a manufacturer based in one of Sydney's far-flung western suburbs. The chair was one of a series made for Gateway Computers. Attempts to buy it (for aesthetic rather than sentimental reasons) failed. It was not for sale.

It's now a part of history.

Just six years after coasting into Australia on the coattails of the failed indigenous PC maker Osborne Computer, Gateway has pulled out. A simple announcement on its Web site told the tale of a company which had gone into freefall.

"Gateway re"grets to inform all our customers that it will no longer actively sell its products in Australia and NZ; or from this ANZ Web site."

IDC Australia's published analysis is that this is the end of the firm - in this region at least.

"The vendor is not going to have a similar opportunity to capture market share again as it did with the takeover of Osborne. Add to that the harm that this is going to do to the vendor's reputation internationally and you can pretty much right [sic] them off."

Just a few days later, and determined not to be so easily written off, Hewlett-Packard announced its intention to take over Compaq, which itself had already taken over Digital Equipment in 1998 and Tandem beforehand. The $US26 billion deal made the combined entity the world's second largest computer company after IBM, with annual revenues of $US87 billion, and the largest supplier of personal computers on the planet.

When Compaq took over Digital, its management described it as a "cobra swallowing a water buffalo". It was an apposite image as Compaq suffered a modicum of indigestion from its monstrous meal. It had to blend product lines and cultures, eliminate duplication, seize cost savings and re-establish its brand. Carly Fiorina, Hewlett-Packard CEO and the chairman and CEO of the proposed combined entity, had better buy her antacid tablets in bulk.

She will be swallowing the Compaq cobra at a time when global markets are slowing down, and PC markets are in decline.

Fiorina had already attempted a merger with services and consulting giant PricewaterhouseCoopers in order to rejuvenate Hewlett-Packard's flagging fortunes. When that proposal faltered, she went after a hardware partner, finding one which would make the combined company the world's largest supplier of PCs (although with a reported 19 per cent global share it can hardly be described as a monopoly, especially with Dell on 14 per cent nipping at its heels), servers, imaging systems and printers.

Michael Dell must be thrilled by the events of the last few months. Although knocked from the number one slot, Dell Computer will enjoy the effects of Gateway's gradual demise combined with HP/Compaq's inevitable pre-occupation with cementing the merger and wresting the $US2.5 billion annual cost savings that HP predicts can be found by 2004.

One of the most significant challenges Fiorina will face is to maintain the 5 per cent market share lead over Dell, which is a canny player in the PC market. Dell itself, however, is not immune to the slowdown and shake-out in the sector, and it has reported second quarter revenues lower than the comparable period a year ago and taken a $US742 million charge in order to pay for restructuring and retrenchments.

At face, it might appear that the consolidation now ripping through the PC sector is purely an effect of the international economic slowdown, and a hiatus in personal computer demand. It is not. It is the latest instalment in the maturity cycle which has played out across the broader IT industry for decades.

Long long ago, when mainframes roamed free (and before they were relabelled enterprise servers), there were six major suppliers, known as IBM and BUNCH (an acronym standing for Burroughs, Univac, NCR, Control Data and Honeywell). Only two still stand alone.

Slightly less long ago, when I wrote for that long-extinct journal Minicomputer News, there was an entire forest of minicomputer suppliers: IBM, NCR, Hewlett-Packard, Honeywell, Bull, Nixdorf, Prime, Pyramid, Apollo, Data General, DEC. Most of the forest has since been felled and used as scaffolding to build newer companies that sell servers.

What is happening now in the PC sector is the latest incarnation of that rolling tide of change. Admittedly, it is being sped along by the slowing economies of the world, but it was ultimately inevitable as technology moves on, demand shifts and companies that cannot react swiftly enough disappear or get taken over, leaving just a few empty chairs in their wake.

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Beverley Head

PC World
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