March 8, 2002 1:45 PM PST
If HP-Compaq OK'd, which products stay?
Assuming shareholders approve the acquisition of Compaq, it's highly likely Palo Alto, Calif.-based HP will adopt many of Compaq's product-line names and computer designs as its own, especially in the Wintel market. This would take advantage of Compaq's stronger brand recognition and of its four "configure-to-order" facilities that are cutting the cost gap with Dell Computer.
Specifically, HP will likely phase out its Vectra desktops and Omnibook notebooks for the corporate market in favor of Compaq's more popular Evo desktops and laptops, sources predict. Compaq's ProLiant Intel-based servers will probably become the standard bearer, as will its iPaq handhelds.
"If I were Carly (Fiorina, HP CEO), I would get rid of HP's desktops and notebooks," said Gary Griffiths, CEO of Everdream, a Fremont, Calif.-based integrator specializing in subscription computing. "We find that customers are emotional about certain brands. The most trusted brand is Dell. You get it with Compaq and IBM. HP for us is at best a neutral."
The success of the merger will depend in part on how ruthless the new management can be when choosing which groups survive and which go.
"You have to be hard-nosed and willing to eat your own children to be good at technology mergers and acquisitions," said Illuminata analyst Jonathan Eunice.
In the Unix market, HP will probably retain its own designs and phase out Compaq's Tru64 Unix and Alpha servers, according to an informal poll of sources. But Compaq's Himalaya servers and software used to run ATMs and other always-on systems will be folded into HP's family. The storage products from both companies, which don't directly overlap, will likely survive intact for now.
Up in the air
But anything could happen. Often, the acquiring company picks its own brands when product lines overlap. After it bought Digital Equipment, Compaq kept only one product from Digital where lines overlapped--an ultrathin HiNote notebook--and dropped it less than a year later.
The balance of power is also firmly with HP. Duane Zitzner, a longtime HP executive, will run the combined company's client division, which includes desktops and handhelds. Meanwhile, Michael Capellas, Compaq's CEO and the president-elect for the merged company, is moving to California along with other Compaq execs, HP has confirmed.
In the final analysis, though, only a few people know what will happen. Every source in this story admitted to having no inside knowledge about the company's plans.
Even few HP and Compaq employees know the answers. To keep political infighting down, and to stem executive defections, decisions on which product lines to keep were made by committees staffed by executives from both companies in an isolated "clean room" in Arizona, according to Merv Adrian of Giga Information Group.
Neither HP nor Compaq would comment on specific brands. But the companies have said that the product plans for the merged company have been set, and some Compaq brands will survive. Company executives have also strongly indicated that where product lines overlap, one will disappear.
Despite the overall lack of certainty, however, many have said that Compaq's brand recognition and customer loyalty in the corporate market make the question of Wintel-based products an easier one to guess about. Sticking with Compaq products here would be the pragmatic choice, analysts said.
"It would behoove HP-Compaq to stick with that Compaq line...HP is really an afterthought in the corporate decision-making process," said Matt Sargent, an analyst at ARS. "Compaq may end up winning out across the board as the brand in defining the succession PCs."
At a minimum, HP will adopt the ProLiant line, according to every source interviewed. The servers will be sold under the HP name but be called ProLiants, in other words.
"I would be surprised if they didn't adopt the ProLiant," Griffiths said.
An argument for Compaq PCs
Further, Compaq's configure-to-order centers, which allow the company to customize both consumer and corporate desktops, have substantially reduced some of the cost advantages enjoyed by Dell. HP doesn't have equivalent facilities. The quickest way to take advantage of these centers, therefore, would be to adopt Compaq's PCs.
"They make more margin on the build-to-order systems," said Lindy Lesperance, an analyst at Technology Business Research, noting that the build-to-order systems have been profitable.
Compaq does not technically build computers in the four configuration centers, which it acquired from Inacom in early 2000 after several attempts to create a similar capability internally. Instead, contract manufacturers deliver "bare bones" chassis containing power supplies and other components that are common across product lines, according to a Compaq representative. Compaq technicians then insert processors, memory, hard drives and other customizable options.
The popularity of the corporate brands, combined with the cost savings that can be achieved through the configuration centers, may also prompt HP to go with Compaq's Presario consumer line over its own, currently more popular, Pavilion line, Sargent said.
Still, the decision-making process is less clear here. Stephen Baker, an analyst at NPD Intelect, predicted the Pavilion name could prevail, while others said that the combined company could even go with different brands for different locations or prices. In handhelds, HP might hold a technological bake-off or split marketing by geography, Baker said.
In notebooks, Compaq will likely win because of the work it has put into portables. "Compaq has a superior industrial design. They better integrated wireless and have invested more in notebook development," said Alan Promisel, an analyst at IDC, who predicted that HP would keep the Omnibook brand but adopt Compaq's technology.
Some, though, added that choosing Compaq's Wintel products over HP's may turn out to be irrelevant. From an engineering perspective, the products offered by the companies now are quite similar. Plus, both companies are losing market share in various segments.
"There is very little opportunity for market growth" in the PC-centric market, Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray, said in an earlier interview. "Never in history has any company been able to buy itself out of mediocrity."
In Unix systems, though, it's a foregone conclusion that HP will pick its own technology. Compaq's Alpha line of servers, which it acquired from Digital, have never gained widespread acceptance despite rave reviews.
In addition, the Alpha brain trust has left. In June, Compaq said it would phase out the Alpha chip in its RISC-Unix servers in favor of servers built around Itanium, the chip designed by Intel and HP. Most of the Alpha engineers have since accepted positions at Intel.