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HP after the Merger

HP has published a document that maps out where they are going with their product lines. It appears to be well reasoned and clearly indicates overlap problems. The question for investors, is HP going to be able to combine billions of dollars worth of product lines with only a 5% loss on overlap revenue. That is a tough call.

For the full text of the HP plan, click

The full text indicates overlap in several critical areas. The current CISC(PC based) server lines are almost duplicate all across the product line. They are going with the Compaq ProLiant line, and calling it HP ProLiant. This is probably a good move, especially if the top tools and openview toolsets work on the new server line. Compaq’s server revenue has been slowed during the past six months due to uncertainty over its future. These fears should be allayed.

HP still plans to back its line of RISC based servers. These machines mostly run HP-UX but may eventually become Linux compatible. This was a market share based decision. The industry provides a lot more support for HP-UX than Tru64. The advantages of the Tru64 architecture, such as clustering will be coded into future releases of HP-UX.

The last paragraph makes me happy because I get most of my income from doing systems administration on HP-UX servers. The merger was actually born out of talks that would port HP-UX for use on the PC platform. We shall have to see if those ideas come to fruition. I visited HP in California during the second week of May and there are differing opinions on this matter.

Overall, I think that HP is well positioned to integrate the two product lines. The corporate cultures are another matter. The trauma of losing 15,000 jobs from the combined entity is bound to hurt morale. The fear factor has already caused several excellent people I knew at HP to jump ship and get jobs as HP customers.

It will take another two years for HP to complete digesting Compaq. By that time, Dell Computer will probably have retaken its world-wide lead in the sales of PC’s. Contrary to my opinion stated the week before September 11, I believe the chances of success and increases in shareholder value are good.

Its not a sure thing, but this company looks undervalued.

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Shmuel Protter
investmenttool.com

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