Compaq/DEC seen pressuring European computer firms
Reuters Story - January 31, 1998 07:51
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By Neal Boudette
MUNICH, Germany, Jan 31 (Reuters) - The merger of Compaq
Computer Corp and Digital Equipment Corp is
likely to increase the competitive pressures already squeezing
the declining number of European computer companies, according
to analysts.
The deal creates a $38 billion giant company with leading
positions in Europe in key markets like personal computers,
Windows NT servers and services -- and its gains may come at the
expense of local companies like Germany's Siemens Nixdorf
or France's Groupe Bull .
"I don't think this makes life easier for them," said
Andreas Wahl, who follows Siemens at Credit Lyonnais .
Steve Brazier, a market researcher at Dataquest, said the
merger would not change the landscape of the European computer
industry overnight.
But he added, "We should expect the new Compaq to make
inroads into that space."
For years European computer companies held on to their
domestic markets while struggling to compete elsewhere with
American rivals such as IBM Corp , Hewlett-Packard Co
, Digital and aggressive PC makers like Compaq.
Indeed, in the last several years, Britain's ICL has sold
off most computer operations to concentrate on systems
integration, while Olivetti has done the same to move
more into telecommunications.
Siemens Nixdorf is still among the vendors in Europe,
although its 1996/97 profit was only 105 million marks -- less
than one percent of its 15.4 billion marks in sales.
Bull's profitability is also weak with a 1996 operating
margin of 3.2 percent against an industry average of 10.4
percent. It has partnered with Japan's NEC Corp and
U.S. PC makers Zenith Data Systems and Packard Bell, but none of
these alliances have come to great success.
As traditional customers like German manufacturers or French
banks expand operations abroad, both have trouble providing a
full range of computer systems and services around the globe.
In fact, outside of Europe, parent Siemens AG is a major
account customer of Dell Computer Corp, according to Dell.
"Companies are looking for worldwide information technology
solutions," Andreas Barth, Compaq's European chief said in an
interview. "Siemens Nixdorf is primarily a German or European
player, but not a global player."
But Siemens chief executive Heinrich von Pierer maintained
the Compaq-Digital tie-up was no reason for quick action by his
computer unit.
The merger would "have no direct influence" on Siemens
Nixdorf, and did not increase the need to join with an
international partner, he told Reuters at the World Economic
Forum in Davos, Switzerland.
Brazier agreed to a certain extent. "In Germany, there's not
much of a problem. Globally they are likely to be at a
disadvantage."
Credit Lyonnais' Wahl said finding a partner would be a good
move, and noted that some of Japan's computer groups were also
struggling and could be open to joining forces.
Said Barth, "Linking up with Digital would have been a move
for them to make. It would have given them the presence they
need in Asia and America."
Instead, Digital will bring a long list of corporate
accounts -- including Reuters Holdings Plc , British
Telecom and Credit Suisse in Europe -- into a
merger with the world's largest PC supplier.
Compaq is also the top PC maker in Europe with market share
of 16 percent and rising. In Germany last year, it signed up 480
million marks in new corporate business with top companies,
including Deutsche Telekom, Volkswagen and Deutsche Bank.
Digital could help Compaq expand that business. Its PC plant
in Scotland will bring more production capacity while its
coveted service business, which sets up and repairs computers,
should open doors with scores of corporate accounts.
"Digital has 8,000 people in service in Europe. That will be
a great asset as we compete over here," Barth said.
Both are also leaders in Windows NT systems -- another
high-growth segment with high profit potential. Compaq, for
example, recently bid for a world-wide contract to provide
Reuters with Window NT systems, and lost out -- to Digital.
Still, Digital presents productivity and efficiency
problems. It has 54,000 employees, 18,000 of them in Europe, yet
has $13 billion in sales. Compaq has twice the turnover at $24.7
billion, but only 33,000 workers, 8,500 in Europe.
Consolidation won't be easy, especially in Europe where
labour rules will make it harder to streamline quickly.
"In Germany or France, if you have third parties involved,
and I mean unions, it could be difficult," Barth said. "But in
other countries like Britain you have more flexibility."
Also Digital has its own problems, with false starts in PCs
and uncertain profits. "It won't be easy bringing together
slow-moving Digital with fast-moving Compaq," Brazier said. |
