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Thursday, March 21, 2002

Q: Does the Hewlett-Packard/Compaq merger really have to happen? And if it does, what happens to us users?

A: According to Carly Fiorina, chairwoman and CEO of Hewlett-Packard, the merger must happen for business reasons. Walter Hewlett, son of HP founder Bill Hewlett and a member of the HP board, is against it. That's why they've been duking it out -- in the boardroom and in the media.

Fiorina is already claiming victory based on what amounts to exit polls from Tuesday's special shareholder meeting. Hewlett says it's still too close to tell.

Reminds you of the most recent presidential election, doesn't it?

We probably won't know the fully tallied results for a few weeks -- and in the meantime, both sides will continue posturing.

Certainly the workers at both companies have a vested interest. If the merger goes through, the combined company will lay off 15,000 workers. If it doesn't go through the market decides who gets to keep their jobs.

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The world outside Silicon Valley and Houston -- including users -- won't be affected as much. Sure, there are millions of users of equipment from both vendors.

Many of the product lines will be combined or phased out. But this is the computer industry, where products get phased out every few years anyway. In most cases, support exists for a short time -- until some midlevel marketing person decides to pull the plug on a specific product's support -- or phase it down.

Within the past two months, I called HP for support on my desktop printer, only to be told it was out of warranty and no longer eligible for phone support without a large fee.

Then in another call to HP, I find that I can get easy support for the ink cartridge for this same out-of-warranty printer. Where's the logic?

Users should expect to see more product lines disappear as overlapping products are asked not to compete with one another. There also will be a greater emphasis on chargeable services -- mainly to large companies.

The issue that nags me about the merger is not whether it makes sense. It probably does make sense as a defensive move in an industry that is definitely on the defensive.

My concern is whether the merger will mean any forward progress. Both companies already have large, well-trained development teams. It's not likely that they'll be combined to create any real development synergy.

Both companies sell computers, printers, personal digital assistants and related services. The media have picked up that computer sales are hobbled by intense competition from Dell, Gateway, IBM and other computer giants.

But so are the other markets in which the combined company will compete. Lexmark has turned the printer industry into one in which all the money gets made in supplies.

Palm has been reducing the prices of its PDAs, creating price pressure on Compaq iPaqs and HP Jornados.And computing services are under assault from large companies and independent contractors -- to a greater extent than ever due to the large number of unemployed tech workers.

The bottom line is that both companies have serious margin problems, and that this is a combination born not from strength but from weakness. As Carly Fiorina notes, the industry will consolidate whether or not this merger happens.

It's just whether HP leads the consolidation or has to play catch-up. Either way, users don't necessarily win. They just get a chance to exist under different conditions.

It's not yet time to stock up on inkjet supplies. But don't be surprised when the support call you make answers with a different company name.