Feeds

Princess Fiorina kisses the Ugly Frog

Mirror, Mirror on the wall - who's the vainest of us all?

  • alert
  • submit to reddit

Bridging the IT gap between rising business demands and ageing tools

Analysis You see - fairy tales do come true. For Prince Don Capellas, having butchered most of the assets he inherited from the acquisitions of DEC and Tandem, his wish of Compaq becoming a services company finally came true. Meanwhile, HP's Princess Fiorina has kissed the ugly frog - in the hope that it will turn out to be an ersatz Pricewaterhousecooper.

HP's $25 billion acquisition of Compaq (and what's left of DEC, Tandem included) in a deal worth $25 billion is set to be the ugliest merger the industry has ever seen. For almost forty years the two have traded each other blow for blow (and here we're honouring Ken Olsen's DEC as the strategic heart of the company, rather than Rod Canion's IBM PC clone outfit) only to end in a collapsed heap, like a pair of prizefighters who've run out of puff, collapsing on each other for mutual support.

Companies usually merge for one of two reasons. Either they're a pair of poorly placed underdogs who decide to pool their assets because of straightforward economic consolidation. Or they're a pair of complementary companies, with differing customers and products, which decide they'd be stronger fighting together than separately.

HP's acquisition of Compaq is neither one nor t'other, and although Carly's goal of acquiring services expertise - as demonstrated by her instinctive bid for PwC - was laudable, Compaq makes for the most expensive choice going. In short, the write-down involved in ridding the merged Hewlett Compaq of duplication is little short of astronomical. It may well prove to HP cheaper in the longer to have launched a storage, or consulting, or PC brand from scratch than to merge the two.

But big mergers appeal to corporate vanity. How else can we can explain Fiorina selling such a bad deal to her board: for if you could pick a Fantasy Bad Deal out of the ether, you couldn't come up with one worse than HP and Compaq.

For a start, both have expensive enterprise investments that are effectively declared terminated. That looks good on paper, but carries enormous support costs. HP declared itself out of the RISC game and committed to Intel's IA-64 line several years ago. Compaq made the same decision earlier this summer, terminating the Alpha EV8 processor and handing its prime engineers to Chipzilla. But that simply means the merged HP-Q will have to bear the cost of maintaining three processor architectures - HP has committed to revving the PA-RISC line to 8900 - and long standing Tandem customers use MIPS-based Himalaya systems, for a decade.

And in the US consumer PC market, the two account for 70 per cent of sales between them. We hope that someone in the HP legal department has paid due diligence to the monopoly implications, for between them, the two have the market sewn up.

Then there's storage, which the two expensively lead. Storage still makes up for a large part of the big-ticket enterprise purchases, and the pair overlap almost perfectly: which in dull accounting terms means much of the capital that HP and Compaq have thrown at their businesses recently can be written off. Somewhere inside the merged HP-Q some brave soul will have the task of simplifying these two products lines, given their history (ServerNet, etc) of disparate technologies, but as sure as hell, we wouldn't want to be in their shoes.

Or in charge of merging the vast R&D efforts the two maintain.

One overlap that may strike you as um, synergistic, is the corporate cultures. DEC was the East-Coast patrician, and HP too with its much lauded garage ethos, is essentially a West-Coast patriarchy too. We're not sure how long, or how much good manners either of these folks can take. For the two were essentially engineer-led, and from that follows that each company should try to lead or own technological trends rather than steer through marketing-led business partnerships.

A braver choice for HP would have been to prise its way into new infrastructure partnerships, swallowing a Nokia, or a Nortel. Or even an ARM. But instead of looking forward, HP has looked back, and fallen on an acquisition target that looks agreeably like itself only financially weaker. There's the comfort of conquering an old lay, for sure, but at $25 billion, HP is essentially buying red ink, and a whole heap of trouble. ®

Related Stories

HP to buy Compaq for Battle of the Bulge
HP makes Don Capellas an offer he can't refuse

The Power of One Brief: Top reasons to choose HP BladeSystem

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple ran off to IBM
But never fear fanbois, you're still lapping up iPhones, Macs
Nadella: Apps must run on ALL WINDOWS – PCs, slabs and mobes
Phone egg, meet desktop chicken - your mother
HP, Microsoft prove it again: Big Business doesn't create jobs
SMEs get lip service - what they need is dinner at the Club
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Samsung threatens to cut ties with supplier over child labour allegations
Vows to uphold 'zero tolerance' policy on underage workers
White? Male? You work in tech? Let us guess ... Twitter? We KNEW it!
Grim diversity numbers dumped alongside Facebook earnings
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Reducing security risks from open source software
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.