HP/COMPAQ: Merged company starts off smoothly

The new Hewlett-Packard will need to overcome countless challenges before it can call the acquisition of Compaq a success, but resellers, users and analysts say the company has started off smoothly.

The prompt announcement last week of a product roadmap and management line-up helped calm nervous customers. So did the product decisions HP made: while some products are being phased out, buyers will face few radical changes in HP's portfolio within the next year.

"It looks like they have done a lot of planning and are taking the best of both worlds," said Jean Norton, of Sysnet Staffing, an OpenVMS consultancy. "You can't expect [the transition] to happen overnight, but I think they are making some good decisions."

Norton's praise does not come lightly. She witnessed the blunders of Compaq's troubled acquisition of Digital Equipment Corp, a deal fraught with corporate culture clashes, internal and external communication problems, and clumsy product and branding decisions. She also runs a consulting company for Compaq's OpenVMS operating system, which has a murky future now at HP. HP has pledged it will follow through with Compaq's previously announced OpenVMS roadmap, but many users are nervous the system will be left to wither from benign neglect.

Despite such concerns, Norton was impressed by HP's swift work in naming several layers of management and by the company's decisions on the products that will survive the deal. Finishing both of these tasks in the new HP's first week put the company well ahead of the timeline of Compaq's Digital acquisition, Norton said.

A key factor behind HP's rapid timeline is the million hours the company says its employees spent in integration planning before the deal closed. The vocal objections to the acquisition raised by the Hewlett and Packard families pushed HP to make and disclose plans early in an effort to sway edgy shareholders -- resulting in a transition plan that Gartner analyst Paul McGuckin said "far exceeds any previous merger blueprint in the IT industry".

One area in which that blueprint remains nebulous is HP's channel strategy. HP has openly admired Compaq's direct distribution commercial PC sales, and has frequently voiced a desire to bolster its direct sales figures. That has some channel partners spooked -- and wishing HP would be more forthcoming about its plans. Signals from the company have been mixed, with HP seeking to increase its direct sales capability through the acquisition while also reassuring partners that a rising tide lifts all boats.

"Resellers want to know, does HP want to play with the partners or not?" said IDC analyst Janet Waxman, director of the research firm's systems and storage distribution channels program.

Working in the IT industry channel "is like musical chairs", she said, as partners wait for the companies they work with to finalise plans around which they can adjust. This is especially true now for many HP and Compaq resellers, which are currently in limbo, waiting for the dust to settle and HP to more clearly communicate channel plans.

But one Compaq reseller said he's not worried about working with HP, and noted that the strength of the companies' unified product line could open new sales opportunities.

"I don't think the merger will change our business one iota," said Paul Giobbi, president of Zumasys in California. "It strengthens their position with us as an enterprise service provider."

In the past, Giobbi was reluctant to offer his customers Compaq's midrange server products and would sell IBM hardware instead. Now, however, he plans to take a good look at HP's popular midrange Unix gear. He said he is likely to offer these systems along with IBM servers.

Merging operations has forced HP and Compaq to be up-front about where the strengths lie in their respective product portfolios, noted one analyst.

"One thing that strikes me when these kinds of events happen is that it brings out honesty in the vendors," said Gordon Haff, an analyst at Illuminata. "If you had asked HP two weeks ago what the problem was with their Intel servers, they would have said, 'I don't know what you are talking about'. Now they say, 'Yeah, our Intel stuff is kind of weak, isn't it. I think we will get rid of it pretty soon'."

Some users were pleased with HP's openness with regards to which company had the better products, giving users another reason to be optimistic that the acquisition will go smoothly.

"It doesn't bother me that they cancelled some products," said Kees denHartigh, systems and network analyst for the University of Alberta's Electrical and Computer Engineering department. "HP is a research and development company first and foremost. They are not like the Dells of the world. They see value in engineering, and if they see a good product like Compaq's ProLiant servers that works well, they'll go with it."

As the products from both companies merge, HP and Compaq customers are also looking to draw closer together. Leaders from HP and Compaq user groups have discussed ways they can combine their annual conferences. In addition, the heads of Compaq user groups around the country were set to hold a conference call on Monday to map out their plans for moving forward with HP, Norton said.

Meetings like this could help users make their own tough decisions as they adjust to the new HP.

"In the end, any time there is change someone has to get used to something new," said K.S. Bhaskar, vice president of business development for platforms and technologies at Sanchez Computer Associates, and a customer of both HP and Compaq. "At least so far, things seem to be going fairly smoothly."