• 09/04/2001
    11:30 PM
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Compaq/HP Hairball

Hewlett-Packard's $25 billion acquisition of Compaq looks messy for the storage group
When the economy is weak, the game becomes one of who can steal market share. That's why Hewlett-Packard Co.s (NYSE: HWP) proposed $25 billion acquisition of Compaq Computer Corp. (NYSE: CPQ) will make unsettling reading for EMC Corp. (NYSE: EMC) today (see Hewlett-Packard, Compaq Merge).

In storage terms, the merged organization has a giant business. Analysts estimate the combined revenue of the two companies’ enterprise storage groups to be more than $6 billion. That puts the new entity on a par with EMC in revenue terms (see EMC Hammered), as well as presenting a significant challenge to IBM Corp. (NYSE: IBM), Sun Microsystems Inc. (Nasdaq: SUNW), and Dell Computer Corp. (Nasdaq: DELL), all vying for slices of the storage pie.

“Their competitors must assume that together these two companies represent a much more formidable challenge than apart,” says Harsh Kumar, analyst with Morgan Keegan & Company Inc.

EMC officials were unfazed by the news. “This announcement is really no new news as far as storage is concerned,” says Michael O’Malley, an official spokesperson at EMC. “There’s no new products, no articulated vision, no specific strategy. In fact the only thing that is new is the confusion created for the customer.”

And it would seem that there's an element of truth in this. Firstly, HP resells Hitachi Data Systems’ high-end storage arrays, whereas Compaq builds its own to address this market. Then Compaq resells Shark, Big Blue’s high-end storage array, while IBM resells Compaq’s Storageworks mid-tier RAID arrays. Under the new regime it’s not yet clear which of these OEM deals still makes sense, or what it all means for customers.

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