Sun: HP-Compaq move is "destructive"<img src="http://images.asia.cnet.com/i/g/update.gif" border=0>

A Singapore-based senior executive at Sun Microsystems has described the marriage between Hewlett-Packard and Compaq Computer as a "destructive merger".
Written by Nawaz Marican, Contributor
SINGAPORE--A Singapore-based senior executive at Sun Microsystems has described the marriage between Hewlett-Packard and Compaq Computer as a "destructive merger".

Early yesterday, HP said that it would acquire Compaq in a stock swap worth about US$25 billion. The deal, one of the largest in technology history, would merge two of the biggest names in computers, printers and computer servers, giving them a total revenue only slightly less than IBM.

In an interview today, Lionel Lim, Sun's vice president for Asia South, said that the merger "destroys the value that has been created by Compaq over the years."

"When you acquire a company that is not complementary, you typically rationalize and destroy the technology investments made by the two companies, as well as the brand equity that was built over the years. This extends to the internal processes and relationships that a company has developed with its customers...(and) does not add value to the shareholders," he claimed.

Citing HP's acquisition of Apollo in 1989, he pointed out that Apollo's products are non existent today. 'After the purchase, HP captured the No.1 position for Unix workstations for a mere nine months...before sliding all the way back."

With Compaq's acquisition of Digital Equipment a few years ago, Lim cited differences in "culture and internal politics" for the less-than-successful merger.

"When Digital was acquired, a lot of their best talent left...and where are they now? In Microsoft, Sun and Intel...I think a similar play-out will take place in the next 12 months," Lim noted.

Looking ahead, he sees HP and Compaq taking more than a year to iron out their cultural and technological differences.

"I think they'll be lucky if they can work well together in two years," Lim said. This is particularly true for Asia, as the region is more complex, he added without elaborating.

International Data Corporation Asia Pacific associate director (Servers and Workstations research) Avneesh Saxena concurred with Lim's views.

"It'll be a challenging task for the newly merged company to get their act together as the two companies will have to look at what products they are going to keep, the branding and the distribution channels," Saxena told Singapore.CNET.com in a telephone interview.

Market research firm Gartner believes it is unlikely that HP and Compaq will complete the deal.

"However, if they do (merge), the companies, their customers and partners will likely experience at least two years of major uncertainty across all their business activities. This deal would not likely benefit any of them," Gartner said in statement.

"Both companies have struggled to resolve conflicts between direct and indirect sales channels. In PCs, they would face the challenge of maintaining two brands, not to mention two businesses. One would have to go. The printer business, which still accounts for a substantial part of HP's business, would benefit somewhat. In services, both vendors derive most of their revenue from low-growth, hardware-support offerings," it added.

Opportunities from the merger
"I don't think any (rival) vendor has anything to fear...in fact, this merger provides the competition with an opportunity in the server market," IDC's Saxena said.

According to IDC, the overall server market by revenue in Asia Pacific (excluding Japan) was US$1.38 billion in the first quarter of 2001. During the period, IBM registered 32 percent market share (by revenue), while HP and Compaq grossed 19 percent and 17 percent, respectively. Sun held 14 percent.

"Although, the combined market share of HP and Compaq will add up to 36 percent, it's highly unlikely the merged company can sustain at that level."

The customers of the two companies, particularly Compaq's, would also "feel uncertain of the situation and this is when IBM and Sun can tap on their customers," Saxena added.

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