In the wake of the Sept. 3 announcement that high-tech giant Hewlett-Packard Co. (HP) is buying Compaq Computer Corp.–one of the top three computer makers in the school field–a Compaq official assured eSchool News that the company’s existing school customers have nothing to fear from the merger.
But most school technology directors who spoke with eSchool News said they intended to take a wait-and-see approach before purchasing any additional Compaq products.
“We plan to deliver superior customer value and deliver it globally” as a result of the merger, said George Warren, director of K-12 marketing for Compaq.
Warren said that although Hewlett-Packard will be the surviving brand name of the merger, some Compaq sub-brands also will weather the storm. He said educators with Compaq products should not fear that their services and support will dry up as a result of the acquisition.
For now, “schools with Compaq products should still call 1-800-88TEACH with any problems, and maintain those relationships,” said Warren. “It’s likely those will be the relationships that they stay with.”
Despite these assurances, “the short-term pain felt by customers caught in the transition [of such a large merger] will be real,” predicted Jim Hirsch, assistant superintendent for technology at the Plano Independent School District in Texas.
Sales and service relationships undoubtedly will change, Hirsch said, as the new company is not likely to keep the same number of employees, nor absorb the overlap of existing territories. In addition, recently purchased equipment lines may be discontinued earlier than customers planned, causing some support issues.
Hirsch recommended that schools put their purchase plans on hold “until a better vision of what the future holds for the new company emerges.”
Rick Bauer, chief information officer for the Hill School in Pennsylvania, agreed. “There will be some hesitancy from technology buyers as the company sees which product lines merge, disappear, or otherwise morph along into the new HP product line offerings,” he said.
But Bauer thinks the merger will be good for schools in the long term. “To see a company competing head-to-head with IBM can only be good for our market,” he said. Bob Moore, executive director of information technology services for the Blue Valley Unified School District in Kansas, sees another potential benefit of the deal.
“A combined Compaq-HP will be able to offer a breadth of products and services unlike its competitors. It has the potential of providing ‘soup-to-nuts’ solutions to schools,” Moore said, although he added, “Some schools want that, many do not.”
The merger creates a behemoth with 145,000 employees and $87 billion in revenue–about the size of IBM Corp.–with products not only in the personal computer business but also in computer servers, printers, and high-tech services.
Compaq and HP are Nos. 2 and 4 in overall worldwide PC sales, but their combined total would surpass leader Dell Computer Corp., according to the most recent figures from Gartner Dataquest. Compaq ranks first in worldwide server sales, while HP is fourth.
“This is a decisive move that accelerates our strategy and positions us to win by offering even greater value to our customers and partners,” said HP’s chairwoman and chief executive, Carly Fiorina, who will keep those posts at the merged company.
The deal “vaults us into a leadership role with customers and partners–together we will shape the industry for years to come,” Fiorina said.
The company will still be called Hewlett-Packard and will keep its headquarters in Palo Alto, though it will have a substantial presence in Houston. Compaq’s chairman and chief executive, Michael Capellas, will be president.
After the merger closes, which is expected to happen in the first half of 2002, the new HP will be 64 percent owned by HP shareholders and 36 percent owned by Compaq shareholders. Capellas and four other Compaq directors will join HP’s board.
“It’s an extremely strong match for both firms, particularly at the executive level with Fiorina and Capellas,” said analyst Rob Enderle of Giga Information Group. “She’s more of the charismatic visionary, he’s more of the operations person. The two of them together should be able to take the combined firm places they couldn’t go separately.”
HP and Compaq said the deal would save them $2 billion a year by 2003, but Gartner Dataquest research fellow Martin Reynolds said that won’t be easy. Both companies, he said, have long product lines that customers will not want to see phased out.
The new HP will be structured around four operating units. Here’s how the new company stacks up in terms of unit leadership and estimated revenues (according to corporate calculations combining the two companies’ trailing four reported fiscal quarters):
- A $20 billion Imaging and Printing franchise to be led by Vyomesh Joshi, currently president, Imaging and Printing Systems, of HP.
- A $29 billion Access Devices (PCs and handhelds) business to be led by Duane Zitzner, currently president, Computing Systems, of HP.
- A $23 billion IT Infrastructure business, encompassing servers, storage and software, to be led by Peter Blackmore, currently executive vice president, Sales and Services, of Compaq.
- A $15 billion Services business with approximately 65,000 employees in consulting, support, and outsourcing to be led by Ann Livermore, currently president, HP Services.
The deal comes as the computer industry at large suffers through declining sales–a trend blamed on a saturated market and the slumping worldwide economy. Compaq lost $279 million in the most recent quarter; HP posted a net profit of $111 million in its last quarter, but that marked an 89 percent decline from the previous year.
The companies did not say whether they would be cutting more jobs beyond reductions announced in recent months. Compaq has said it is cutting 8,500 positions, leaving it with about 60,000. Hewlett-Packard is slashing 6,000 jobs, giving it 87,000 positions.
Investors pounded the stocks of the two companies to 52-week lows Sept. 5, indicating Wall Street has yet to be convinced HP’s acquisition of Compaq is a good idea. HP shares fell 22 percent in the days following the announcement, dropping the value of the deal from $25 billion to $19.5 billion.
It “might take a while to unravel” what the merger ultimately will mean for schools and other consumers, said Adam Newman, senior analyst for Eduventures.com, a Boston-based market research firm. But the blockbuster merger should intensify the competition for Apple and Dell, which have led education sales in recent months.
Apple executives declined to comment on the acquisition, but Dell founder and chief executive Michael Dell told the Associated Press that he expects his company to benefit from the “turmoil and confusion” surrounding the deal.
Compaq Computer Corp.
Apple Computer Inc.
Dell Computer Corp.