3, 2001 press release, announcing the agreement to merge of two of the
top 10 storage companies
continues the trend of mergers
and acquisitions we've been seeing in this market all year. You're going to
hear a lot about synergy and the complementary roles of these two organisations
and their product lines, from their marketing departments. My view is that both
these companies were in trouble before the recession kicked in. The effect of
the IT recession made it harder to hide these problems.
The source of
these underlying problems can be summarised as follows:
- Aside from printers and imaging, which it dominates, HP has been #2 or #3
(market share slots) in a lot of segments within the IT market. The #1 company
is nearly always more profitable in these kinds of markets, unless the #2
company is satisifed with its role. HP was not satisifed, and burned marketing
effort and resources to try and climb these unscalable mountains.
- Compaq got indigestion from acquiring DEC in the 1990's and never really
recovered its manufacturing lead. It did however, become the world's largest
VAR, for storage products. But VARS don't make as much profit as their
- When people buy a PC, they prefer to buy it from Dell Computer rather than
Compaq or HP.
- When people buy a mid range server they prefer to buy it from Dell Computer
rather than Compaq or HP.
- When people buy a mainframe class server they prefer to buy it from Sun
Microsystems or IBM rather than Compaq or HP.
Who will be the winners and losers from this merger?
- HP's storage business will get a bigger route to market by using Compaq and
its channels. They've been working hard to secure their future in this strategic
segment, and the new company will have the critical mass to make this work.
this article above was first published on the day of the HP/Compaq announcement
in our news page,
and was an immediate gut-feel type reaction. For more views see also:-
Market research companies,
- I suspect that the newly merged business will sell less servers than the
sum of the two separate companies.
In the short term the sales
and marketing departments in both companies will spend less time thinking about
customers, and more time worrying about their jobs. As a result Dell will pick
up a lot of unexpected PC business from traditional HP and Compaq customers,
while Sun and Dell will find it easier to sell their server products against HP,
Compaq and their VARS, relying on the fact that no-one can be too sure which
product lines are going to continue and which ones will be scrapped.
the long term, the new HP will emerge as a larger, more profitable
company, and when the recession is over it will be well positioned to retake any
lost ground. That's when the benefits of the merger will really become clear.
HP ACQUIRES GIANT COMPAQ: QUESTIONS ABOUND
Maleval Editor of
is expected to acquire Compaq for a sum approaching $25 billion, to form a
sizeable entity worth nearly $87 billion. For the moment, we know only that the
current executive VP, sales and services of Compaq, Peter Blackmore, will lead
one of the four operating units of the new HP, heading a $23 billion business
division including servers, storage and software.
The biggest question, now to be answered: - Compaq and EMC each
claimed first place in the worldwide storage industry. The issue is now moot:
the new HP is clearly the winner.
Questions that still remain:
- Hard disk drive
manufacturers must now deal with a massive (and enormously influential) OEM
customer for PC, server and storage system drives. Will this mean further price
- What will be the new group's final choice for
DVD: HP's DVD+RW
or Pioneer's DVD-RW, to which Compaq has already committed?
- On the tape side, you have HP,
which makes both drives and libraries, and Compaq, which doesn't manufacture
them at all in this sector. Is there a risk of fall-out in the current list of
Compaq's OEMs? Overland and Quantum could have legitimate cause for concern.
- As for SANs, HP is primarily
implicated at the high end, with partner HDS - with which the company recently
extended by three years an OEM agreement for the Lightning 9900. Will this
arrangement hold to the end?
What will become of the Compaq/IBM
accord that allows Compaq to resell high-end Shark systems, and Big Blue to
propose StorageWorks solutions? Between HDS and IBM, a choice will have to be
made. Compaq has its own, very nice mid-range line of StorageWorks established
in the wake of its acquisition of Digital Equipment. Yet its storage subsystems
are not compatible with HP's.
One choice is the following arrangement:
- HDS for high-end storage subsystems that need
connecting to mainframes;
- StorageWorks for the mid-range. It seems unlikely
that HP would resell IBM. Moreover, the Compaq/IBM deal was not exactly a
success. Did Compaq sell even one Shark? VersaStor should be the core of the
agreement, but IBM has had enough. It will also be hard for the two to agree
upon a single strategy in matters of virtualization software, especially since
each is already well along with its own offers: Compaq has been working on
VersaStor within its Enterprise Network Storage Architecture (ENSA), which was
recently expanded, while HP has just acquired StorageApps (see below), which
will likely be absorbed in its Federated Storage Area Management (FSAM)
Things will be easier with iSCSI, which is only
just emerging, and for which both Compaq and HP have declared their intention of
entering the market with products by 4Q01, for the former and 2Q02 for the
How exactly will the two different corporate cultures marry?
How, exactly, can personalities as diverse as Compaq's Mark Lewis, VP of
Compaq's Enterprise Storage Group, and Nora Denzel, VP and GM of the HP
worldwide storage organization, co-habitate? And just how will the two
companies' customers respond to their suppliers' nervousness about the future of
their storage systems acquisitions?
Ultimately, we should expect
considerable difficulties between the teams of both companies, and more
importantly, some particularly painful human and technological choices. We can
also expect EMC, IBM, HDS and all other NAS and SAN players to take full
advantage of the restructuring period, however temporary it may prove. For once,
one plus one may work out to less than two, at least in the short-term.
...about the author:- Jean-Jacques
Maleval is the Editor of
published in February 1998, it's a 16 page monthly news report on the storage