Hewlett-Packard's takeover of Compaq Computer may flourish in the long term, but it will face rocky times over the next few months as the two computer makers pound out their differences and rivals attempt to muscle in on their turf. The news of the HP-Compaq deal took some Asia-Pacific analysts by surprise, while others had predicted consolidation in the hard-hit technology industry. But technology observers agreed that computer-making competitors, such as Dell Computer, could exploit the inevitable turmoil by aggressively angling for customers while HP and Compaq awaited United States regulatory approval and merged operations. Dell is the industry's runaway leader in personal-computer production, and will remain so after the takeover. Compaq is the world's second-largest computer maker and HP the third. 'This is going to lead to uncertainty in both of these companies,' said Dane Anderson, vice-president of Internet and computing systems research at International Data Corp Asia-Pacific. 'In the intermediate term, it's going to be a great challenge . . . It's certainly not going to be easy by any stretch of the imagination.' Senior analyst Lillian Tay at research house Gartner concurred. 'Many companies will be looking at this merger, whether it will be successful or not,' she said. Technology companies, ranging from PC manufacturers to dotcoms, to telecommunications gear makers, have been battered by last year's plunge in stock prices. Furthermore, the global industry slump, which began in earnest this year, forced many of the giants, including HP and Compaq, to fire thousands of staff. Not only have sales declined, but computer and related equipment makers have cut product prices in an effort to increase orders. Mr Anderson said: 'If you are going to acquire a company, now is the time to do it.' Consolidation has not been exclusive to the technology sector. The global trend has been leaning more towards the creation of monster companies. Although the information-technology industry has been consolidating since the start of this year, Mr Anderson did not expect such a large takeover. 'I wasn't expecting it and I was in disbelief when I heard it,' he said. 'I think that it's certainly a very bold move.' Ms Tay said Gartner was counting on such an announcement. She said it came as no surprise. 'Gartner has been predicting this shake-out for some time; that there will be consolidation worldwide in the PC market,' she said. 'The business is just too cutthroat right now. Whether there will be more shake-out is very hard to predict.' Initially, Mr Anderson said, the deal made HP a formidable competitor in its field and would put it in a new league. HP and Compaq carry similar product lines, ranging from laptop computers to high-end servers. Dell is more narrowly focused on PC creation and sales, but is also looking into more expensive items, such as servers and services. Both analysts agreed the industry would focus on such a big deal for the time being, to gauge whether the takeover could successfully weather choppy waters during the next few months. The two companies must weed out duplicate products, consider new branding, decide on a common support structure and fire overlapping staff - without major hiccups. Compaq is no stranger to takeovers, although it has been more familiar with the role of dominant player in the past. It took over enterprise giant Tandem Computers for US$3 billion in 1997 and in 1998 it bought Digital Equipment in a US$9.6 billion acquisition. Compaq chopped about 15,000 Digital workers after its acquisition and the integration of the two companies was criticised by many observers. Mr Anderson recalled that once Compaq acquired Digital, competitors launched aggressive promotion campaigns to lure doubting customers. History might repeat itself because Dell and server-maker Sun Microsystems were expected to attempt to step into the breach and pump up their market share, analysts said. Companies that supply the two firms with parts, such as Asian chipmakers, may also have to adjust their expectations. 'Anyone supplying HP is probably happy today and anyone supplying Compaq might be concerned,' Mr Anderson said. One analyst said Apple Computer could be up for grabs in the short term. 'What will happen to Apple is anyone's prediction,' he said.
