The best kept secret in the industry

No surprise that the headlines this week are dominated by the Hewlett-Packard buy out of Compaq, although it seems that no-one expected the move—the ‘best kept secret in the IT industry’ seems to be the most fitting description of the move so far, with local staff keeping a tight lid on future plans. Which leaves the rest of us to speculate on the in and outs of the deal...

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By  Mark Sutton Published  September 8, 2001

No surprise that the headlines this week are dominated by the Hewlett-Packard buy out of Compaq, although it seems that no-one expected the move—the ‘best kept secret in the IT industry’ seems to be the most fitting description of the move so far, with local staff keeping a tight lid on future plans. Which leaves the rest of us to speculate on the in and outs of the deal...

So what are the implications of this mega-merger? Obviously, first of all it has to be approved by regulators both in Europe and the US. Fiorina has said that the company will divest assets to meet monopoly rules, but with an estimated 75% share of the US PC retail market, that could mean losing a lot of what is still the core business for both companies.

Managing the merger could prove to be difficult—the differences between the cultures of the two are not so great, but the overlap in staff, particularly in this region led one observer to comment that ‘it will be slaughter’.

There are some obvious synergies to be gained. HP buys into storage, services, some key product lines and regional offices, but for every gain there is an overlap or grey area where it seems that more could be lost than gained. HP’s channel is generally regarded as more structured than Compaq’s.

Considering that both operate primarily in the PC space, where margins are low, and both have been underperforming, it will take some skilful management to come out the other side of the next six to twelve months with a profitable, cohesive company that has a wider scale than either company has separately.

As to the suggestions that the real winners will be IBM and Dell, well, maybe Dell can make a difference in the US, but in the Middle East that seems less likely. IBM on the other hand, should probably see the next twelve months as a critical period to strengthen operations—if Fiorina and Capellas get this right, then Big Blue has got company.

Enough from me, what do you think?

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