1. Shares of Hewlett-Packard and Compaq Computer continued to slide yesterday as investors concluded that the giant Silicon Valley computer-maker's plan to buy the Texas-based Compaq - announced on Monday with great fanfare - was driven by weakness rather than strength.
The largest merger in the computer industry's history was given bad reviews by the US business media and analysts who concluded that for these troubled companies, bigger was not necessarily better - as illustrated by a history of previous technology industry mergers which have flopped.
Questions were raised mainly about the complications arising from integrating the two firms, which could allow rivals IBM, Dell and Apple to snatch business during the resulting hiatus, which will last until mid-2002.
The merger is also expected to be closely scrutinised by US and EU anti-trust regulators, which could result in the divestiture of overlapping products and technologies.
On paper, the merger should be a winner. It creates a rival to world-leader IBM with combined sales of $87.4 billion (€98.4 billion) and a company that easily outstrips Dell as the number one personal computer-maker. Its defenders said it may mark the start of inevitable consolidation in the IT sector, laying a foundation on which companies can rebuild.
Hewlett chief executive, Ms Carly Fiorina, and Compaq CEO, Mr Michael Capella argued yesterday in presentations to the media that the all-stock acquisition - valued at $25 billion before Compaq shares fell on Tuesday and now worth some $19.2 billion - would create a computer hardware, software and services company that would be a powerful force in the industry.
Ms Fiorina, who will be CEO of the combined company, warned executives in an internal letter not to despair at negative reaction to the deal. "Our competitors are going to use every chance they can to discredit it," she wrote. "They'll say we'll lose focus; they'll say we won't be able to execute; they'll say we won't be able to make the tough decisions fast enough. I believe we will prove them wrong."
Her claim that the merger would cut operating expenses by over $2 billion a year met with scepticism by analysts. If Hewlett could not cut costs out of $40 billion in revenues, did it need to go to $90 billion to cut costs, asked Mr Robert Cihra, PC analyst for ABN Amro. He said Texas-based Compaq, which will lose its trade name, had got a "raw deal".
Compaq had been doing the right thing to prepare for an upturn, while Hewlett had not done much, he said.
Both Hewlett and Compaq are suffering from poor employee morale because of recent lay-offs, said Ms Laurie McCabe, a vice president of Summit Strategies in Boston. "The corporate politics are going to be brutal. They will be out to eliminate 'duplicate jobs' left and right."
The new company plans to lay off 15,000 employees, or 10 per cent of the workforce. If this percentage is applied to the Hewlett and Compaq operations in the Republic, 400 jobs could be lost out of the combined total of 4,000 workers.
The merger comes at a time when hardware makers are trying to reinvent themselves to make up for declining revenues, something which IBM has done successfully by providing high-tech services and bundling customised purchasing, accounting, servicing and inventory systems. Both Compaq and Hewlett failed recently to buy consulting partners.
The new company, to be known as Hewlett-Packard, will undergo close scrutiny by the European Commission, which can stop a merger or impose conditions to ensure fair competition.
Recently, the EU blocked the acquisition of Honeywell by General Electric.
