Hewlett Jr outlines Merger Plan B

There's still a month to go before Hewlett Packard and Compaq shareholders get to vote on the Sircam merger, but the battle lines are now more clearly drawn.

After months of sniping, DNA-approved dissident Walter B Hewlett has proposed his own personal course of action for HP, and what do you know, it radically differs from Carly's industrial combine.

Unfortunately,however, it's just as flawed as the official merger plan, only it appeals to different sensibilities. It's designed to tickle different greed-spots.

Hewlett Jr suggests that HP should focus on its printing and imaging division, the part that generates the most revenue per employee. As indeed it does. HP owns the laserjet workgroup printer business, and has a significant share of the PC deskjet business too.

It can pull stunts such as reducing the amount of ink in a DeskJet cartridge by 40 per cent, while keeping the retail price the same. This is a wheeze it pulled a couple of years ago, and we're still waiting for the first expose. In short, HP names the price.

But rather than keeping this cash-cow in-house, Hewlett offers a suggestion designed to whet boomtime investors appetites: a spin-off. He thinks the imaging and printing division should be IPO'd as quickly as possible, bringing an immediate cash windfall to the company.

HP spun off its Agilent division - that's the bit which the original Hewlett and Packard founded in a garage it makes scientific lab equipment), - when Fiorina took the throne. Agilent has done swell, and HP has regretted its departure ever since.

Where this leaves HP's PC, server and storage businesses is a good question - for all are subsidized by the printing business.

In fact a printer-less HP would have little option but to merge and consolidate, only it would be negotiating from a much weaker bargaining position.

In the past fortnight, HP has stepped up its advertising blitz with double-page spreads designed to show that a merged HPaq would be number one in many of the markets in which it currently it plays third, fourth of fifth. But this is kindegarten maths which assumes that customers will blindly migrate to their new parent. Hewlett's previous interventions have been well made, and remind us that corporate mergers are painful, and customers have a tendancy to wriggle away from the proscribed course.

But at least there's a distinction. Hewlett proposes a windfall, followed by a rapid extinction of the server, storage and PC businesses. Fiorina dreams of a mighty IT complex, but proposes no logic to the merger other than might is right.

Now isn't it extraordinary how little out of the box thinking is going on here? It's a depressed market, one that's ripe for cash-rich giants to make strategic acquisitions. With a little planning, HP could acquire crucial technologies for wireless and infrastructure investment.

For example, Qualcomm has been fingered as a takeover target by Nokia, and most recently by Intel. It owns key 3G patents, and while far from being the spectacular ubermesch its boosters advocate, is still a nice little earner. Many other weakened players could help HP's infrastucture: Nortel, for example; or BEA. Or the owners of vast, empty hosting sites across this great continent.

You don't need to be spectacular to win in this business, only shrewd. And for HP to win, it strikes us that the most sensible course of action is simply to carry on being HP. Right now, it's a company whose strengths are apparent only to its rivals. It's not a Sun, and it's not an IBM. But it spends an inordinate amount of corporate attention trying to be both, when it needn't be either.

With 88,000 employees, and with a healthy order book, this is no way for a grown-up company to behave. Alas with just the two dismal visions - the Fiorina slow-death, or the Hewlett fast-death - on offer. ®