Avoiding merger fallout

UNCERTAINTY ATTENDS all mergers. Under the best conditions, it takes several months for the merged entities to identify and trim redundant personnel and projects. It takes years to build a cohesive culture. Corporate customers with plans to acquire new Hewlett-Packard or Compaq equipment are smart to wonder what changes that merger will bring.

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At this stage, it's hard to predict the merger's course or plot most of its specific effects on the vendors' customers. But drawing from the lessons of past mergers, there are a few likely issues worth planning for.

The greatest risk associated with planned HP-Compaq PC server purchases isn't that the system you buy will be discontinued, leaving you with a white elephant. The Intel-based server market is so thoroughly commoditized that a Compaq system can easily be substituted for one from HP, and vice-versa. HP and Compaq are also offering guarantees (make sure you get yours in writing) on trade-in values and duration of support.

Instead, the merger will mostly likely affect prices, service, and the future of Compaq's Alpha platform.

I've read predictions that Compaq's more successful PC server operation will see little change, but complementary Intel-based systems from HP's lineup will be rebranded to take advantage of Compaq's cachet. If that's true, we can expect HP to raise its prices to Compaq's levels; HP originally set its pricing to compete with Compaq, something it no longer wants to do. Savings realized from staff reduction and production consolidation will probably be plowed into higher margins rather than price cuts, at least initially.

When HP and Compaq start to fuse their disparate service and support operations, you should expect problems. Merged companies sometimes rush to make deep cuts in customer service staff for a quick reduction in operating costs. An ideal solution would be to contract service and support from a reseller that handles both vendors' product lines, preferably one that maintains its own stock of repair parts. Until HP's people are cross-trained in Compaq's technology, and Compaq's parts ordering system is linked with HP's, good answers and timely access to parts might be hard to come by.

HP and Compaq sell Unix servers, too, which raises a unique set of issues -- both companies are slowly phasing out their 64-bit Unix CPUs, moving to Intel's Itanium. There isn't much risk for consumers of HP Unix hardware; Itanium is largely based on HP technology and the HP-UX operating system runs as well on Itanium as on HP's PA-RISC architecture.

But Compaq says it plans to keep its Alpha CPU alive for a couple more generations, a plan that I think may (and should) be reconsidered after the merger. As impressive as Alpha's performance is, Compaq mishandled this acquired asset so badly that it relegated itself to a fringe role in the Unix market.

I don't expect the merged company to keep Alpha going, given HP's much stronger position and Intel's aggressive Itanium plans. HP would be smart to accelerate the phase-out of Alpha and throw all its resources behind developing market-leading Itanium servers.