HP/COMPAQ: Future uncertain for customers

For customers of Compaq Computer Corp. and Hewlett-Packard Co. (HP), yesterday's merger announcement kicked off what looks likely to be a long stretch of uncertainty and doubt.

Both companies have broad portfolios encompassing a vast array of products from desktop systems for home and business users to pricey enterprise-class servers, software and storage appliances. The two vendors have been competitors in many of those areas -- which means that the post-merger HP will inherit an array of overlapping products.

Some of those will be discontinued after the companies merge, HP Chairman and Chief Executive Officer (CEO) Carly Fiorina and Compaq Chairman and CEO Michael Capellas said Tuesday during meetings with reporters and analysts. The two executives said they have already discussed in detail which product lines will survive, but said they won't make product announcements until customer transition plans are in place.

One overlap area IT professionals are already starting to worry about is the future of the companies' competing Unix systems, HP's HP-UX and Compaq's Tru64. Analysts aren't optimistic that both will survive.

"Tru64 is on the endangered list," opined Nathan Brookwood, principal analyst with Saratoga, California-based consultancy Insight 64.

"My reading of the situation is that HP-UX has a fair amount of momentum on IA-64," Brookwood said, referring to Intel Corp.'s 64-bit processor architecture. "Compaq has very little momentum for Tru64 on IA-64. From the starting position of the two implementations, my guess is that the Tru64 version is probably the version that will be jettisoned the quickest."

The eventual resolution of the Unix overlap is impossible to predict, said International Data Corp. (IDC) analyst Vernon Turner -- and while it's being worked out, customers will be left in the lurch.

"You can't build business plans based on uncertainty. And in this case, the next few years are full of uncertainty," he said. "I think what it means is that Sun (Microsystems Inc.) and IBM (Corp.) have an opportunity to talk to the Compaq and HP customer base and offer up platforms that have long-term roadmaps."

(IDC is a division of International Data Group Inc., the parent company of IDG News Service.)While changing Unix systems is far from a trivial task, Turner expects to see some movement between vendors within the next two years as Compaq and HP sort out their plans. Brookwood said he too expects some customers to switch platforms to avoid the Compaq-HP chaos.

"Sun is the likely inheritor of those (customers)," he said. "Sun has already gained a lot of market share as other Unix vendors fall off the board."

Intel-based servers running Linux and Microsoft Corp.'s Windows will also pick up some adherents because of their expanding capabilities and stability within the industry, he predicted.

"One of the casualties of a lot of these mergers are proprietary product lines. If I wasn't already locked into a proprietary product line, I might try to make sure I don't get locked into one in the future," he said. "The odds of Microsoft or Intel going under in the future are small."

Tru64 users visiting enthusiasts' Web site Tru64.org are clamoring for answers about the future of their platform. "I think someone at Compaq and at HP needs to really make a statement so users know where things are going. They should not ask the industry (us) to wait around for them to make an announcement," one reader posted on the site's message board.

Few on the board expect a merged HP to continue supporting both HP-UX and Tru64 -- and most posters are grimly predicting that Tru64's days are numbered.

Energy provider KeySpan Corp. just invested in a new system that uses Tru64 Unix and Windows NT workstations to monitor and control natural gas distribution systems in several of its territories. The company is concerned about ongoing support for Tru64, and annoyed about Compaq's lack of communication with those relying on the operating system, said Lead Analyst Kevin McGrath, who works in KeySpan's production control division.

As the merged company works to "simplify" its product line -- to use Capellas' phrase -- customers will suffer from fewer options and less vendor competition, forecast one longtime Compaq and HP customer.

"My biggest worry is that there's less choice," said Albert Barajas, vice president of engineering at managed services firm S4R Inc. Barajas has several Compaq workstations at home, and has in previous jobs deployed hundreds of Compaq machines and worked with HP-UX.

"I'm hoping they cherry-pick -- take some of the good stuff and use it," he said. Barajas cited Compaq's workstations as examples of products that are superior to HP's. Overall, however, he doesn't see much upside for customers in the merger.

"They're really similar companies. It's just a market-share grab," he said. "How do you gain market share in a sagging economy? You buy your competitor and stick them on a shelf. "He doesn't expect the union to catapult HP into the top echelon of IT hardware and services vendors. "Neither of them have the products to compete with IBM on the high-high end. If (HP) had bought Sun, that would have made sense -- they have a lot of really high-end stuff," he said.

But it isn't just enterprise customers who could face an altered tech landscape if the merger goes through. Consumers are likely to see less choice in retail PCs, according to analysts.

More than 55 percent of the PCs sold in the United States during the second quarter of 2001 were from HP or Compaq, IDC estimates. Worldwide, the two vendors accounted for 22 percent of PC sales during the second quarter. Once the companies combine, overlapping desktop and notebook products will almost certainly disappear.

"Customers should expect less choice than they had before, and perhaps a little less price competition," said IDC analyst Alan Promisel. But changes aren't imminent: He expects the integration of Compaq and HP to take at least two years.

Gartner Inc. principal analyst Todd Kort agreed that customers are likely to have fewer PC models to choose among, but he expects that prices won't noticeably rise. "There's too much competition for even a vendor of the combined size of HP and Compaq to dictate prices in the market," he said. "I think people like Gateway (Inc.) and Dell (Computer Corp.) are strong enough to keep them in check."

There's even a chance that PC prices could drop, Promisel suggested. A post-merger HP could take advantage of its size and power within the industry to force better component prices from suppliers and partners, driving down costs for consumers. "The truth is, we're not sure what's going to be shaking out yet," he said. "There are a couple of different scenarios."

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Stacy Cowley

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