HP/COMPAQ: Analysts say IBM safe for now

With the announcement Tuesday of its multibillion-dollar merger with Compaq, Hewlett-Packard has sounded a warning to global IT leader IBM.

Commenting on the US$25 billion merger, Carly Fiorina, HP CEO, said the combination "vaults" HP into a leadership role. Fiorina was referencing the depth of the proposed new company's product and service line as well as its new financial value. According to HP, the merger will turn it into an US$87 billion global technology leader. This puts it on par with IBM, which turned over US$88 billion in revenue last year, and way ahead of Dell which recorded revenues of US$31.9 billion for fiscal 2001.

But any perceived excitement regarding its new market position should be contained according to IDC Australia senior analyst Graham Penn. "IBM has 18 months to prepare for the re-organisation of HP," Penn said. "They are not going to be sitting around and watching."

Although the company's have entered into a merger agreement, Penn said nothing meaningful will happen until next year and then it would take a further 12 months to put the organisations together.

Rick Partridge, a senior research analyst at US firm D.H. Brown agreed. "Any delay will take the wind out of their [HP] sails. If they can capture that excitement, outstanding. But if they have to take nine months off while they battle over details, well, IBM isn't going to stand still. Competitors will try to strengthen their positions. The challenge is to keep the appropriate momentum." said.

Perhaps the key area in which HP stands to gain with the merger, and take on IBM is in services. It is believed the combined HP/Compaq services business will boast 65,000 services professionals and thus be more competitive with IBM which lays claim to 100,000 professionals.

But even when this merger is completed, Penn said it would be a long time before there is proof in the pudding. He said a merger between the two heavyweights simply did not guarantee clients would come rolling into the new company's doors. "Clients are not going to tip over to HP. They [HP] have got to find their spurs," and added: "It will be 2004 before it will be ready for battle".

Whatever the case, most observers agree the HP road to prosperity is a way off and nor will it be easy.

"It took IBM six or seven years to pull its act together, and now HP and Compaq have a similar chore ahead of them," said Dana Gardner, senior analyst at Aberdeen Group in Boston. "You have two distinct companies with two distinct cultures at work. Last I looked at the way Compaq assimilated DEC [Compaq acquired Digital Equipment Corporation in 1998], it didn't work out so great for a long long time."

IBM did not provide comment for the story. "Unfortunately IBM isn't making any comments on this announcement at this point," a company spokesperson said.

(Dan Neel and Ed Scannell from InfoWorld.com contributed to this story)

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