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Home » Hacking News » Good. Now only 1 BIG computer company I won't buy from.

Good. Now only 1 BIG computer company I won't buy from.

by Majik on September 6th, 2001 Overnight reaction to the huge planned merger of Compaq [NYSE:CWP] and Hewlett-Packard [NYSE:HWP] has tended to be favorable, although some research firms worry the liaison is fraught with danger.

Frost & Sullivan, in its appraisal of the proposed marriage between the rival PC makers, said that the merger is necessary, but risky for both firms.

The research firm says that the current stagnating PC market has forced the linkup between the two companies, which have been unable to compete with direct-sell PC vendor Dell in the ongoing price war.

Frost & Sullivan research analyst Andrew Bell said that big has always been perceived as beautiful in the PC marketplace, but now the industry has changed.

In his analysis, Bell said that market share loss contributes to difficulty obtaining the best deal with suppliers. The resulting pressure on prices, in turn, leads to further market share losses.

Against this backdrop, he said, "The merger between the two companies is the only way to escape this quagmire."

Bell adds that there are two main dangers in a merger of the IT giants: achieving the integration of the two firms; and the fact that HP will remain dependent on the PC marketplace.

The best-case result of the marriage, he concludes, is that the "new HP" emerges as a leader in hardware operating in the higher value services sector.

The worst case scenario, however, is that the merger is never finalized, resulting in significantly reduced staff levels and low staff morale, while Dell and IBM capitalize on the situation.

Forrester Research is more upbeat on the deal, with Carl Howe, a principal analyst for the firm, saying that the merger is greater than the sum of the synergies and cost-savings between the two firms.

Howe argues that the merger bid is about survival in a consolidating industry. By acting now, he says in his report, the two firms are trying to secure their future in a post-PC world of services.

The Forrester analyst said the merger would create a new firm that has $87 billion in annual revenues, second only to IBM with its $90 billion revenues.

With a PC market in shambles, Howe predicts that after a nightmarish two years of integration, the new HP would emerge to operate in the era of services and non-PC platforms, instead of being stuck fighting for the title of lowest-cost PC maker.

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