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One + one = ...?

One + one = ...?

For the channel, there is much to be wary about regarding the merger between IT giants HP and Compaq. In economic modelling, one plus one does not always equal two.

In fact, the key motivation behind such a venture is to attain efficiencies in everything from R&D to back-end support and channel strategy. This merger - although it is really the acquisition of Compaq by HP - is no different.

To rival IBM and Dell, both HP and Compaq will be looking to rationalise product ranges, staff and distribution channels but perhaps not resellers.

Assuming that the deal proceeds, there will be some nervous employees at both HP and Compaq in the coming months as the integration plays out. Analyst and media estimates of the number of jobs to go have been as high as 30,000 globally, although HP itself believes the figure will be half that and spread over two years.

I suspect that some distributors that have allied themselves to one or the other brands will also be watching closely and jockeying for position in the final supply chain line-up. In the end, it will most likely boil down to how well they know their customers, as that is what the combined entity wants to get its hands on.

There are still many questions to be answered in regards to branding and the shape of the merged organisation. The sheer enormity of the players - HP/Compaq will have combined annual revenues of nearly $80 billion based on current run rates - means the integration will take time. It may take many moons before we know the answers to those questions.

HP is clearly the stronger brand overall, particularly in imaging, printing and proprietary big iron. However, in PCs, handhelds, storage and (arguably) services, Compaq is perhaps better recognised. Will both brands survive?

What resellers and distributors really want to know is what impact it will have on them. Those resellers who have built their businesses around one of the brands will be keen for the process to be finalised sooner rather than later. They would also be advised to start contingency planning around worst-case scenarios.

In the end, a reseller's position is more tenable than a distributor's, irrespective of how the rationalisation razor falls. They own the customer relationships. They are the feet on the street. They are the champions of any particular vendor's marketing guff. They also have the vast geographic reach and vertical finesse that is so crucial to successful information technology distribution in Australia.

Time and time again it has been proven that no vendor can do without the channel if they really want to make any sort inroads into the vast SME market, which makes up the majority of the Australian economy.

Distributors of the two brands will have a far more nail-biting time in the coming months. None of them would currently be interested in investing time and resources into building their HP and/or Compaq business when the potential threat of no longer being part of the game hangs overhead.

It would appear fairly obvious the current line-up of distributors will face some sort of cull, but when, and how severe it will be, is far from clear. The new vendor that emerges from the takeover currently being voted on will have to get its house in order quickly. If not, the momentum built up over the years by each of the two machines will slow too much to ever recover full steam.

In that scenario, instead of one plus one equalling two it may only total one-and-a-half.

What do you think about the HP and Compaq merger?


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