May 6, 2002 1:50 PM PDT

HP, Compaq consumer PCs to survive

Hewlett-Packard will maintain the consumer PC lines from both Compaq Computer and HP for now, an unexpected twist in a merger that in general will lead to fewer product lines.

HP will continue to sell both the HP Pavilion and Compaq Presario computer lines to consumers, according to sources. It is unclear whether HP will differentiate the two product lines by price, features or where they are sold, but the two separate brands will survive the merger.

The dual-brand strategy for consumer products will be an exception to HP's overall strategy of "adopt and go." Under this strategy, HP is selecting the most popular of the two companies' corresponding product lines in a given category, along with the bulk of the management team behind it, and dissolving the less-popular line. HP, for instance, is expected to adopt Compaq's ProLiant family as its Intel-based server brand.

"When we had a choice between two products, market share wins unless you give me some awfully compelling reason," said HP President, and former Compaq CEO, Michael Capellas, describing the strategy last week.

HP could not be reached for comment, and Compaq declined to comment.

While it reduces customer choice, offering fewer product lines greatly simplifies inventory management, administration and manufacturing.

HP, though, may have good reason for making an exception. HP and Compaq are closely matched in consumer notebook and desktop sales and have often competed for shelf space and market share. Last October, for instance, HP climbed past Compaq to become the top notebook seller in U.S. retail, while Compaq dropped from No. 1 to No. 3, behind Sony. During the first half of 2001, HP and Compaq accounted for more than 80 percent of desktop retail sales in the United States.

By eliminating one of the brands, HP could inadvertently open the door for Sony, Dell Computer, Emachines or Toshiba to sell more PCs, analysts have said since the merger was announced last September.

This factor has contributed to some uncertainty on the part of analysts and others as to which consumer product line the new company might keep--a hesitancy that hasn't been as evident in regard to other products.

In March, resellers and analysts held fairly strong opinions on other product lines. Many said the company would keep Compaq's ProLiant server line, the Evo line of business desktops, the company's iPaq handhelds, and the Evo line of business notebooks.

In April, these opinions were bolstered by some of HP's executive choices. The company picked Compaq executives Mary McDowell, Alex Gruzen and Jeri Callaway to oversee, respectively, Intel-based servers, notebooks and business PCs.

The consensus, however, was not as strong when it came to consumer PCs. HP's Pavilion is more popular, but some stated that the Compaq Presario had a chance of surviving by riding on the coattails of Compaq's business PCs. HP is also expected to keep the configuration centers Compaq established for building customized PCs.

"Compaq may end up winning out across the board as the brand in defining the succession PCs," Matt Sargent, an analyst at market research firm ARS, said in March.

In April, HP announced that John Romano, an HP executive, would head up the consumer strategy.

The new HP will unveil a number of its strategies Tuesday and fill in details about its product plans and, in all likelihood, layoffs. The company may also shed more light on the survival of the Compaq brand names. In March, Capellas said that the corporate name would continue to be used.

"There is huge brand leverage in the Compaq name," Capellas said at the time. "You will see the Compaq brand used in the new company quite fully."

Since then, though, the companies have been mum on how this would manifest itself.

 

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