HP-Compaq would be European titan

Hewlett-Packard's acquisition of Compaq, announced late on Monday, will allow the PC maker -- No. 3 in Europe in terms of PC shipments -- to transform itself into a titan that controls more than twice the market share of its nearest European rival, according to industry analysts.

But the company may not be able to maintain that position as Dell takes advantage of the considerable time it will take the merger to go through, and the confusion that will inevitably surround it.

While a number of obstacles lie in the path of bringing the two companies together, including regulatory approval and integrating two large companies that were already seeing difficult times, the combined enterprise would rise to dizzying heights in terms of numbers alone. It would account for about 21 percent of the PC market for Europe, the Middle East and Africa (EMEA), with quarterly shipments of about 1.8 million units, according to the latest figures from Gartner Dataquest.

The new HP would be No. 1 by far in the EMEA region, with Dell Computer as its nearest competitor with a 9 percent share of the market, as of the second quarter of this year. Fujitsu-Siemens would rise into third place with a 7.3 share and shipments of 609,000 units for the quarter.

IBM would be fourth largest, with 6.6 percent of the market and quarterly shipments of 552,000.

But the mathematics are not always as simple as they seem, according to research director for Gartner's hardware and operating systems group, Ian Brown. "You can't just take the number two player and the number four player and jam them together to create a winner. Dell is number one because of its business mode and is speed of manufacturing rather than just jamming something together to make something bigger than the rest."

Dell could even gain more market share from the merger, added Brown. "Pulling two business together that have been slipping against Dell does not mean they will be bigger afterwards. Dell will make the most of this [confusion] and will grow."

Globally, Dell passed Compaq as the largest PC maker in the first quarter of this year, and even combined, HP and Compaq will still not match Dell in PC sales. Both HP and Compaq have been losing worldwide PC market share and revenues in recent quarters.

Both HP and Compaq have borne the brunt of recent declines in the global market for workstations, with HP's shipments roughly cut in half over the last year.

In Europe, on the other hand, Compaq is still the largest PC seller, although Dell has been steadily gaining. Gartner reported that Compaq's market share for the second quarter of 2001 was 13.7 percent, down from 14.6 percent for the same quarter the year before.

HP has been growing in Europe, with 6.5 percent market share for the second quarter last year and 7.4 percent for the same quarter this year, an increase of 12.9 percent.

HP in Europe "is executing well against an established channel strategy", Gartner said in a recent research note.

Despite its sheer size, the new HP would have to grapple with an uncertain European PC market. Consumer sales have been particularly pummelled, as consumer confidence has dropped, according to Gartner. Gartner analyst Brian Gammage speculated that promotions for the consumer PC market in 2000 had already kept sales artificially high and borrowed from this year's consumer demand, adding to the steepness of the drop-off.

The new company may be able to exploit a slightly improved business market in Europe. "The collapse of the home PC market in Western Europe masks a cautious, but more optimistic outlook from business customers," Gammage said in a statement.

ZDNet UK's Matt Loney contributed to this story.

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