Protracted closure harms HP’s prospects

When the Compaq/HP merger was originally announced in September of last year, analysts predicted that if the new entity could keep revenue losses down to around 10 to 12%, the merger would be going well.

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By  Matthew Southwell Published  November 25, 2002

|~||~||~|When the Compaq/HP merger was originally announced in September of last year, analysts predicted that if the new entity could keep revenue losses down to around 10 to 12%, the merger would be going well. And, although the company’s second quarter results indicated that new HP had lost ground in certain markets, it appears as though new HP is gathering its strength to go on a market offensive.

“We have limited the losses we have suffered as a result of the complicated integration process,” says John Saw, director of marketing, business customer organisation, Central & Eastern Europe, Middle East & Africa, HP.

“We have tried to stay market and customer focused, but there has been some distractions. However, those distractions are behind us now. I think that the market loss — if there has been any — will be seen in Q3 data because [that] is the first full quarter of the new company and that would reflect all [of the] distractions,” he adds.

To some extent, HP’s market position has been helped by the inability of its market rivals to take advantage of the post merger confusion. Regardless of the marketing hype from the likes of Sun and IBM, the prevailing tough economic climate has effectively curtailed their capability to mount competitive campaigns. Arguably, Dell has been the only vendor to aggressively go after HP, pledging to bring its manufacturing expertise to the printer and PDA markets.

“On the day the merger was announced there was a great deal more optimism in the market. The fact is that vendors like Sun and IBM have plenty of problems on their plate,” says Gartner Group research director, Andy Butler. “A certain amount of market attrition is inevitable. If [new HP] can hold it to a 10% decline I would say that they are on track to weather the impact [of the merger],” he adds.

However, HP’s challenges are not entirely behind it. With its product roadmap in place, the next priority is legally closing the merger in all of its operating markets. Partly because the merger is expected to lead to 6000 redundancies in the EMEA region, leagally completing it outside of the US could take anywhere up to 18 months.

“The inability to close the company structure is potentially damaging in the short term,” warns Butler. “HP is in a hiatus period at the moment where they are vulnerable to attack; they are vulnerable to partners, software vendors and disenfranchised customers going elsewhere. The sooner HP can demonstrate to these people that it can build a coherent company culture the more chance there is of [new HP] making progress,” he adds.

The protracted closure of the merger is complicating the computing giant’s channel strategy, particularly in the local market, where it still remains unclear if HP will be able to opt out of its exclusive channel agreements as a result of the merger.

According to HP’s Saw, the vendor is ‘evolving its channel’ as it tries to avoid over distribution and add value through its current partners. “We respect the terms and conditions [of our agreements] with all of our partners and we are in discussions with them now,” says Abdulaziz Mohammed, marketing manager, HP Middle East.

Although the dust has barely settled on the merger, HP’s executive team is already assessing further acquisitions as it prepares to build a services business capable of challenging the likes of IBM Global Services and EDS. “Joining Compaq and HP, we believe, has positioned us as the third largest service provider worldwide. But that isn’t the end of our ambition,” comments Saw.

“We cannot achieve all of our objectives through organic growth, so we can see strategic alliances and acquisitions of specific service organisations [happening]. The two areas that you could expect to see [changes in] are managed services and integration,” he adds.

Maybe HP is the third largest services company in the world in monetary terms, however, “you wouldn’t compare HP with IBM or EDS,” says Bulter.

“[HP is] delivering break/fix services, fairly close to the products, and it will also be extremely good at multiple vendor support services. But when it comes to complex systems integration, managed services, business continuity services, and very high level consulting engagements then [HP] didn’t have the people 12 months ago and [it doesn’t] have them now,” he adds.||**||

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