News

Analysis: Bigger is Better, says the New HP

• By Joe McKendrick
• 05/14/2002

Maybe they should have called the new combined company “HPaq,” evoking images of the all-knowing and prescient residents of the planet K-Pax. In last fall’s movie by the same name, a visitor from K-Pax seemed to have keen insight on the course of humanity. Indeed, as Carly Fiorina, chairman and CEO, and Michael Capellas, president, launched the new HP, which absorbs the former Compaq Computer Corp., they presented a well thought-out roadmap that covered their new company’s role in the uncertain and roller-coaster IT market.

“We have spent literally a million-plus person-hours planning the integration of these two companies,” says Fiorina. “We have sales and customer service people who have playbooks in hand, as of today, who are providing those details to our customers all over the world.”

The two companies have been moving at an unprecedented pace to put the new combined infrastructure in place. The new HP is following “a transition plan more comprehensive than that of any previous IT merger,” says Paul McGuckin, analyst with Gartner.

Along with laying out the company’s future, Fiorina was also breathing a palpable sigh of relief over the end of the long and tumultuous battle to win stockholder approval and overcome lawsuits. However, now the really hard work begins, as Fiorina acknowledged that 15,000 positions would have to be eliminated and end-user confidence restored. “After eight months and millions of hours of integration planning by our teams, today we are ready to do business as the new HP,” Fiorina said. “Our management teams are in place in all 160 countries in which we operate. We have three-year product roadmaps for our customers in place for all of our products." Fiorina added that the HP-Compaq organization also fields more than 80,000 sales, service and support professionals. Websites and e-mail systems have also been combined.

Compaq's ProLiant servers will become HP's IA-32 server offering, gradually replacing HP's NetServer line, HP announced. For the emerging blade server market, HP will also be deploying Compaq's ProLiant blade server architecture. HP's Powerbar blade family will be only sold into the telecommunications industry.

Although many analysts predicted the end of Compaq's AlphaServer – originally acquired with Compaq's purchase of Digital Equipment Corp. – HP will continue to support the system. However, HP will not sell AlphaServer, which competes with HP's high-end PA-RISC servers, into new accounts.

The fault-tolerant NonStop server family from Compaq – originally acquired with its Tandem Computers acquisition – will now be named the HP NonStop Server. HP will continue to support and develop HP-UX, but gradually fold Compaq's Tru64 UNIX features – such as clustering and high availability – into HP-UX. “We’ll blend that into what we have with HP on the HP-UX kernel, and end up with a product that has the best of both worlds,” said Capellas. The enhanced systems will be deployed on Itanium 64-bit processors within the next three to four years, he added. “You don’t want t truncate high-end systems lives in six months as you might a PC,” Fiorina added. “You want to migrate customers off those platforms onto new platforms over time.”

To underscore HP and Compaq’s contention that end-user customer confidence remained strong during the turbulent merger period, Capellas also announced that HP Compaq booked about $5 billion in new business over the previous three months, "in what continued to be a challenging IT spending environment and despite the uncertainty surrounding the merger.” Bigger will be better, he added. “Consolidation in the industry was inevitable, and now, size and scale, and the ability to deliver end-to-end solutions will differentiate us,” he said.

The HP hierarchy will be broken down into four units: enterprise systems, including servers, storage and software. “Customers tell us that spending will continue on rolling out the IT infrastructure,” said Capellas. HP will also invest more than $4 billion a year in research and development, Fiorina said.

Gartner's McGuckin believes that the transition period is a golden opportunity for both HP and Compaq customers to lock into good deals from the merged company. "Customers will have a unique opportunity to migrate off of risky platforms," he says. “For many customers, the risk will finally outweigh the technological inertia and loyalty to vendors and products that have kept them tied to marginal products." There will be financial benefits as well, he adds, in the form of "steep, multiyear discounts as the new HP tries to win business at all costs to demonstrate its market power and stability.”

The new HP will also retain a strong service presence, particularly in midrange, help desk, network, and desktop services, says Dean Davison, analyst with Meta Group. He adds “HP will continue to rely on partners, such as Accenture, for the majority of its applications expertise, though it will have limited packaged-application teams in-house." HP also partners with PwC and KPMG for systems integration, as well as Oracle, SAP and Siebel for applications.