HP/COMPAQl: IBM, Dell seen as winners

Industry analysts seem to agree that Hewlett-Packard Co.'s planned acquisition of Compaq Computer Corp. is good for just about every big IT hardware and services company around -- except HP and Compaq, that is.

Their reasoning goes like this: If the deal wins approval, HP/Compaq will drag itself through a quagmire of a months-long reorganization, laying off thousands and discontinuing one product line after another. During this chaos, the thinking goes, customers would lose their service and support connections and would flee to another vendor.

The choice alternatives, many analysts predict, are IBM Corp., mainly for services, and Dell Computer Corp., mainly for hardware, especially PCs and servers. Sun Microsystems Inc., meanwhile, touts itself as able to attract the potentially estranged hardware and services customers with perfect timing, as it's slated to roll out a high-end server product line based on the UltraSPARC chip at the end of this month.

One of the most negative reactions to the deal came from Martin Reynolds, an analyst at Gartner Inc. in Stamford, Conn. "The product lines of both HP and Compaq cannot continue," Reynolds said. "What this means to IT managers is that you cannot count on long-term availability, giving IT managers an incentive to move to IBM or Dell, where you know there's a future."

Competitors like IBM and Dell will "have a happy feeding ground," added Frank Dzubeck, an analyst at Communications Network Architects Inc. in Washington.

The deal is really beneficial only to top executives at HP and Compaq and not to customers or employees of the two companies or even investors, said analyst Roger Kay at International Data Corp. in Framingham, Mass. "Mergers are a demotivation for the employees of the companies involved, which is bad for customers. including IT managers," Kay said. "IBM and Dell should make as much hay as they can out of this."

The products that remain from the combined company "might not be the best products" but will survive based on whether a product group is located in a new plant or a low-cost market or a country where labor laws restrict layoffs, added analyst Rob Enderle at Cambridge, Mass.-based Giga Information Group Inc.

IBM officials wouldn't comment, but Sun and Dell officials crowed. "It's hard to imagine two weak players making anything more than two weak players," said Shahin Khan, vice president of marketing for computer systems at Sun.

Dell spokesman Mike Maher called the deal the "latest iteration of a market consolidation that's been going on a long time," adding that Dell's success has been at keeping operating expenses and components inventory well below Compaq or HP. The merger "leaves a good window [of opportunity] for us that we've already been climbing through," he said.