Re: HP Buys Compaq

On Tuesday 04 September 2001 11:37 am, Jim Damato wrote:
> Many folks still think of NT servers as PC's, however, the back-end server
> business has matured so much in the past few years.  Five years ago an NT
> (or Novell) server really was a rack mounted PC with a bunch of hard
> drives. Now we're running NT and Win2K on server clusters off a SAN.  I
> agree with Leif that this is the type of technology that HP is after.
>
> -Jim

Well, I have to go with a "Yes and no" on this. HP's 3000 and 9000 servers
already are in this arena, don't you think?

I don't think that HP is looking to acquire high end server technology, they
already have it. I think they have been well respected in that market.

Looking at the business the two have done last year, HP had a revenue of
$48.8 billion earning $3.7 billion. Compaq did $42.4 billion earning $569
million. So the two look pretty similar but Compaq's lower margin is probably
from a greater reliance on PCs for income.

Looking at Compaq's 2000 financial sheet, they booked $14.3 billion in
"Enterprise computing" revenue. This is seperate from Consumer ( $6 billion)
and Commercial Personal Computing ($12.2 billion).

On HP's report it shows a revenue of $20.7 billion for "Computing Systems"
which is seperate from "Imaging and Printing Systems" ($20.5 billion). Now,
if Infoworld is correct with PCs being a third of their revenues, then HP
would be booking about $14 billion in server side revenues as well.

So, the point is that they really don't need each other for technology to
break into markets, I guess. They both have strong PC and server numbers. So
what does the merger offer and what does it mean to customers?

I'd say that one of the choices is economies of scale. Obviously the two have
strong overlapping markets. Infoworld states that they are planning on
cutting 15,000 jobs but I could have sworn NYT said these cuts were pre
existing changes. I suspect there will be more job cuts in the future as the
new company has a chance to look over things. For instance, I don't think it
makes sense for them to support too many brands in the PC market. It is far
too narrow a profit margin in the first place.

Another thing that this new company offers is the "one stop shop" solution
for more people. My guess is that lots of HP customers have Compaqs and lots
of Compaq customers consider HP 3000s and 9000s as valid alternatives to high
end Compaqs. The new company will have the same issue IBM has with different
server lines. But I suppose that HP has a plan of consolidating those lines
because they do not run different operating systems. HPs Unix servers and
Compaqs Unix servers could merge into one line as an upgrade path for both
families of customers. Same with NT servers.

While this really is a valid threat to IBM if HP should pull it off, I still
have my doubts. It is a big project to pull off and as much as I'd like to
think that a company that big could really transform itself that much, I just
don't think so.

> James P. Damato
> Manager - Technical Administration
> Dollar General Corporation
> <mailto:jdamato@dollargeneral.com>

--
Chris Rehm
javadisciple@earthlink.net
If you believe that the best technology wins the
marketplace, you haven't been paying attention.