Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (93657)	11/8/2001 11:53:31 PM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

HP's PC Business Stands Between Fiorina and Glory By Peter Henderson SAN FRANCISCO (Reuters) - If Hewlett-Packard Co. (NYSE:HWP - news)wants to clinch a controversial deal to buy Compaq Computer Corp.(NYSE:CPQ - news), analysts say it may have to jettison the business that the combined companies aspire to dominate: personal computers. The future of the personal computer business, and HP's stake in it, is at the heart of the disagreement between HP Chief Executive Carly Fiorina and disgruntled investors, including key members of the Hewlett-Packard founders' families. Calling off the controversial merger will not shove the genie of ``reinvention'' back into the bottle for the 62-year-old technology stalwart, and Fiorina's ouster would not settle the problems that led HP to bring in an outsider to shake up the firm two years ago, analysts said. ``This is not a referendum on the merger,'' said Lehman analyst Dan Niles. ``It is a referendum on Carly and her vision. It is also a referendum on should HP be in the PC business.'' Bear Stearns analyst Andrew Neff, who called for the merger before it was announced and has been cool to the idea since, has suggested that if HP doesn't build up by buying Compaq it should slim down to focus on printing. That means one thing: ''Get out of the PC business,'' he wrote in a recent note. Personal computers, a low-profit-margin segment which would make up a quarter to a third of the roughly $90 billion in revenues of the combined firm -- which would become the leading PC maker in the world -- has been a main focus of the deal. ``The marketplace is obsessed with PCs. And it actually isn't a PC deal,'' Fiorina told Reuters in a recent interview. ''It's about enterprise computing and professional services.'' But critics say the $20 billion all-stock deal would dilute printers and not appreciably boost Hewlett-Packard's power in the higher margin markets for high-end computers and services. COMPUTERS OR CROWN JEWEL? ``The combination would dramatically increase Hewlett-Packard's exposure to the unattractive PC business,'' Walter Hewlett, son of founder William Hewlett and a member of the board who this week announced a public about face to opposing the merger, said in an interview. ``The transaction would reduce HP's stockholder's interest in the crown jewel of HP, the printer business, by more than one-third,'' he argued. A way to smooth over differences could be to jettison the personal computer, which Lehman's Niles said could be negotiated between investors and management, especially as it tries to win support from the David and Lucile Packard Foundation, with its 10 percent block of shares. ``Hopefully,'' he said ``some concessions will be come up with, either formally or informally. I think the odds are 50-50 in the current form, but with concessions it comes up to 75-25'' in favor of the merger going through. That could also solve the main potential regulatory issue facing the merger: Hewlett-Packard and Compaq are the top two brands of computers sold in U.S. retail outlets. Whether Fiorina would go along is unclear. ``We're integrating this company the way customers have integrated our offerings,'' she said. However, she also has said that HP was in the personal computer business to make a profit -- and PCs have not made a profit lately. Even without personal computers, the global operations of the two companies would be difficult to integrate, exposing the risk of losing business as management turns inward. 'A PERMANENT SCAR' Some investors oppose the merger because of integration risk but ask what they will be left with. ``How do you value the company that really thought they needed to do this merger in order to grow at the rate they promised investors?'' asked Kevin McCloskey, manager of the $3.5 billion Federated American Leaders Fund, which holds HP and Compaq stock. HP's stock price jumped after Walter Hewlett publicly opposed the deal, on expectations the merger could fall apart. ''There's maybe too much of the euphoria for HP,'' McCloskey commented. ``They have to do something,'' said Roger Kay, an industry analyst at technology research International Data Corp. ``I think the announcement and its effects will leave a permanent scar.'' HP closed off 83 cents at $18.35 on the New York Stock Exchange (news - web sites) on Thursday but was closer to $17 before the Hewletts announced they opposed the merger. ``From a short-term perspective, one could argue that Hewlett-Packard as a printer company could be worth around $20 per share,'' Bear Stearns's Neff said. ``From a longer-term perspective, Hewlett-Packard would have focus and vision and the potential to re-emerge as a leader.''