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

To: Night Writer who wrote (94194)	12/12/2001 11:50:36 AM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

Gartner pdf linked & cut&pasted by: skeptically 12/12/01 11:33 am Msg: 264349 of 264352 www3.gartner.com Paul McGuckin, Tom Austin, Thomas Bittman, Charles Abrams, Matthew Boon, Betsy Burton, Brian Gammage, Michael Glennon, Rolf Jester, Daniel McHugh, Martin Reynolds, Phillip Sargeant, George Weiss Gartner FirstTake 10 December 2001 HP-Compaq Deal Less Likely; Buy Products With Caution Mounting shareholder opposition could delay or even end this deal. We reassert our previous advice: Make long-term investments only in products that Gartner deems will be strategic to the new combined company. Event: On 7 December 2001, the David & Lucile Packard Foundation announced its preliminary intent to vote against Hewlett-Packard’s (HP’s) acquisition of Compaq Computer. This move follows similar statements made by Walter Hewlett, HP board member and son of one of the founders, in November 2001. The combination of the Hewlett and Packard families, along with the various trusts and foundations they control, means that votes associated with at least 18 percent of HP’s outstanding shares outstanding are already against the transaction. First Take: These developments place additional doubt on the likelihood of the acquisition being consummated. Between 60 percent and 77 percent of remaining institutional HP shareholders must approve the deal to ensure a majority (depending on assumptions made by financial analysts about the behavior of individual investors). Speedy execution was always key to the success of this proposed acquisition. Now a risk of delay in the approval process exists due to a likely proxy fight, spearheaded by Walter Hewlett. Such an environment increases opportunities for competitors to benefit from uncertainty. Gartner remains concerned that senior management of both companies will be seriously distracted by the need to persuade investors to vote for the deal — rather than engaging customers, and improving strategy and execution. This happens when, more than ever, vendors must focus all their energy on revenue generation and survival. The need to win over investors will likely force the companies to reveal more business operations details so they can better highlight the financial synergies of the acquisition. Although some of this information may help persuade skeptics, its revelation may also highlight areas of weaknesses in the companies’ business models, which could expose HP and Compaq to targeted tactics by competitors. Our advice for customers of both companies remains the same: • Tactical purchases and upgrades remain sound. Long-term strategic commitments, however, should be confined to those products that Gartner has identified as strategic, including: - HP printers - Compaq Proliant servers - HP/UX servers - Compaq StorageWorks storage for the midrange - HP XP storage for the high-end • Investments in PCs and PDAs from either vendor are safe (due to minor technical differentiation and rapid product cycles, respectively). • Services are unaffected by the status of the acquisition. • We believe that competitive pressures and the determination of both companies to meet financial targets will increase opportunities for negotiation leverage in 1Q02. Analytical Sources: Thomas Bittman, Matthew Boon, Betsy Burton, Brian Gammage, Mike Glennon, Rolf Jester, Paul McGuckin, Daniel McHugh, Martin Reynolds, Phillip Sargeant and George Weiss Need to Know: Reference Material and Recommended Reading • ldblquote HP and Compaq Bet on Service-Centric Environments” (AV-14-4740). HP could be trading short-term gains in a market with little growth potential for a chance to corner a more-vibrant, growing, future market. By Tom Austin, Betsy Burton, Brian Gammage and Michael Glennon • ldblquote HP/Compaq’s Plausible Survivability for Unstated Reasons” (COM-14-4658). Fewer design wins and the desire to be the preferred provide