DJN: WSJ(9/4):HP/Compaq -3: A Time Of Weak Demand For PCs
(Dow Jones 09/03 22:15:56)
Hewlett-Packard is likely to get some tough questions from Wall Street. Its
credibility is already shaky, and becoming the world's biggest maker of PCs
at a time when the personal-computer market is suffering would probably
prompt some analysts to scratch their heads.
Integrating two giant companies would be a distraction for management and
could leave rank-and-file employees wondering about surviving the inevitable
cost cutting. And with their businesses under attack from Dell, IBM and
others, this may not be an ideal time to be focused internally.
Indeed, some observers suggest that after Compaq acquired Digital Equipment
three years ago its businesses suffered from a distracted management: market
shares in PCs and workstations initially rose, then fell sharply. The
Digital Equipment deal and others point to the computer industry's spotty
track record of mergers and acquisitions and may create a show-me sentiment
on Wall Street.
The proposed deal comes at a time of weak demand for personal computers.
Market researchers expect the U.S. PC shipments to shrink 10% this year and
worldwide shipments to fall for the first time in 15 years. That contraction
has forced Compaq and H-P to slash employment and costs in an effort to
match Dell's cost efficiencies. Yet the deal would leave the PC as
critically important to the combination.
Compaq gets nearly half its revenue from PCs, and H-P counts on PCs and PC
servers for 25% of its sales. And PCs aren't a moneymaker for either
company. Last quarter, H-P lost an estimated $150 million on its PC business
while Compaq lost $155 million. The companies had combined PC and PC-server
sales of $32 billion last year.
Unlike Dell, both remain dependent on dealers and retailers for a sizable
chunk of their PC sales. What's more, corporate and home PC buyers have been
shunning major new purchases for nearly a year. Businesses are stretching
out purchases, holding onto PCs for four years instead of the three-year
replacement that had been the norm. At home, purchases of PCs have given way
to digital cameras and other add-ons as buyer found that few programs demand
the latest chips.
The move is a bold and risky bet for Ms. Fiorina, the former Lucent
Technologies Inc. (LU) executive who was brought in to succeed veteran H-P
executive Lew Platt in July 1999. The first outsider to run the venerable
company, Ms. Fiorina is trying to transform it into a more wide-ranging
purveyor of computers, software and services for its core corporate
customers. Ms. Fiorina was a star saleswoman at Lucent when she was tapped
to run H-P. The company was splitting itself in two to spin off the test and
measurement business, now called Agilent Technologies Inc. (A), and Ms.
Fiorina was seen as the fresh manager who was needed to help push H-P
forward.
Ms. Fiorina has consolidated businesses, trimming the number of independent
reporting units; she has also tried to shake up the company's sometimes
slow-moving culture and make managers more accountable. Still, it has been a
rough road, and the turmoil facing all computer makers has exacerbated her
task of turning around the company, which had $49 billion in revenue in the
fiscal year ended Oct. 31, 2000. |
