COMMENTARY--The staccato of automatic weapons being fired by Wall Street's shorts at the Hewlett-Packard/Compaq deal should be enough to scare anyone from suggesting that good things may come from this merger. But these are the same shorts that got soiled by going long on dot bombs. Thus, I'll hope that the gang that couldn't shoot straight stays true to form and weighs in that users should applaud this merger.
The deal will make both HP and Compaq better suppliers, as well as stronger industry competitors, partners and leaders. First, let's look at the non-consumer space. HP has been laboring to restore and build up both its enterprise infrastructure and services businesses. Compaq has been laboring to cohere its, er, enterprise infrastructure and services businesses. In this arena, the two companies will fit together nicely.
After its well-publicized missteps during the mid-1990s, HP is back in the scalable server space with some solid products. And, although no one seems to want to talk about it, HP technology is inside the new Intel chips that will be inside the vast majority of tomorrow's computers. But IBM, Sun--and Compaq--are formidable server foes. Challenged by three capable foes, HP would have faced a major uphill trek as it attempted to recapture the luster in its server business.
Compaq flattens that hill considerably. Certainly, server product lines have to be rationalized. Inventories have to be managed. These are difficult challenges, but hardly insurmountable. But make no mistake about it. If a Wall Street short actually walked into a data center, they might not notice the IBM zSeries machines there because they couldn't see over the racks of Intel-based Compaq machines.
What about storage? Storage is poised to capture better than 60 cents on every dollar of non-networking enterprise hardware sold. Has any company been able to consistently challenge EMC in any storage market segment? One company has: that Houston-based outfit, the one that sells PCs--Compaq. HP just "merged" with what is arguably the second best storage franchise in the industry. HP has taken important steps recently to improve its storage business, but Compaq provides the best platform around from which to step back into the storage ring.
What about services? HP and Compaq both are saddled with reputations that they do great configuration, implementation, and maintenance work, but lack business domain expertise. This deal won't change that. But, remember, we're about ready to enter into a period of accelerated server-side technology transition as Intel and Microsoft start rolling out new, more powerful enterprise platforms (with a bit of Linux sprinkled here and there). HP--as a technology supplier to Intel--and Compaq--as the biggest Wintel supplier around--pretty much represent ground zero of this change. Also, as storage ascends, Compaq's storage-area networking (SAN) services strengths will provide major user benefits. Ultimately, users will find that working with a vendor that knows what the newer versions of the industry standard server and storage platforms can do is a major plus, not a negative.
What about PCs? On the enterprise side, Dell's cost structure and IBM's laptop design expertise are hurting Compaq. But how do these advantages translate into user benefits? Well, each point of Dell's channel cost advantage translates into--at best--about a 0.2 percent cost improvement to a user, when the full lifecycle costs of the machine are considered. I think that HP and Compaq can attractively counter Dell's acquisition costs advantage with OpenView and Intelligent Manageability. As for IBM's laptop design leadership, in the mobile space, Hew-paq had better step up. But Jornada and iPaq may herald good things here.
The consumer space is a different issue. The industry question is pretty simple: Is retail, where both HP and Compaq are so strong, doomed in the computer industry? Well, book retailers are still around, and there aren't many products more standard than books. If retail computing tanks, then Hew-paq faces a major near-term problem. But I foresee that retail computing has a lot of life left in it, especially as new common-off-the-shelf (COTS) imaging, home networking, and Internet-based consumer services start to come on line.
Is the deal fraught with challenges? Of course. But don't pay too much attention to the abstract "culture" stuff (you say IN-tel and I say in-TEL) or the "insightful" commentary on the shadowy world of EU regulators. And totally avoid being dragged into "CEO personality" discussions. Instead, focus on the integration issues that will affect you, starting with the character and constitution of your account and support teams.
Beyond that, gauge progress of Hew-paq's integration by watching for the following:
* Aggressive schedules to integrate OpenView and Intelligent Manageability;
* Major demonstration of support by HP for Compaq's storage strategy and leadership storage service offerings;
* More deals with business domain consultancies that have Hew-paq providing infrastructure, configuration, maintenance, and outsourcing/hosting services as a subcontractor--a big subcontractor (this deal may also kick off a consolidation binge in the hosting space);
* Major enterprise-side migration service wins for customers with large Intel-based server farms;
* Major data center wins for Compaq's Non-Stop products;
* Stability in maintenance deals (unless you can get Hew-paq to negotiate more favorable deals, which I think is possible near-term);
* A louder, clearer Intel-based server story from IBM; and
* Again, smiling Hew-paq sales folk near-term; credible statements on account team structures by early next year.
For any Hew-paq customer that thinks the sky is falling, fear not: those are only pellets, shot blindly into the air by a mob, falling harmlessly back to earth. Rather, users should stay focused on supporting their business, getting the best prices, and integrating and running their infrastructures. In my opinion, Hew-paq ultimately will make each of these goals more attainable and thereby make it easier, and not harder, to be an IT professional during this period of major change.
Peter Burris is an industry analyst and Meta Group research fellow.