Channel Unsure Of HP-Compaq Deal

HP executives, who announced the merger agreement late Monday, say the move will turn the combined entity into an $87 billion technology giant with more than 145,000 employees and leadership in areas that include servers, access devices, imaging and printing, IT services, storage, and management software.

The combined company will be headed by Carly Fiorina, chairman and CEO of HP, while Michael Capellas, chairman and CEO of Compaq, will become HP's new president.

Most channel players interviewed by VARBusiness Tuesday said the news caught them by surprise and they had mixed feelings about what it might mean for the channel and the IT industry as a whole.

"Potentially, it could be very, very good for everyone, but a lot of it depends on how they execute," says Mark Romanowski, senior vice president of client services and business development for AMC, a New York-based solution provider that works with both Compaq and HP.

The good news, says Romanowski, is that the merger gives HP and its partners the opportunity to finally provide customers with a true end-to-end solution.

"It's awesome, because now they will have the depth to pretty much do it all," he says. "And from the partners' point of view, it's good because we can take the best of both worlds and just pick the good pieces--because that's exactly how they are going to do it."

The potential downside, he adds, is the amount of time and effort it is going to take to bring the combined company up to speed.

"It's not a simple thing," says Romanowski. "Within HP itself there are so many disparate systems that it's almost funny. [Fiorina] has done a good job trying to consolidate everything, but the systems are still all over the place and they don't talk to each other. Now all of a sudden they have the complexity of the Compaq systems thrown in as well."

Romanowski also thinks Compaq has done a better job overall of building its partner relationships in recent years, and hopes those efforts are continued inside the combined company.

Jeff Romick, vice president of HBR Technologies in Carrollton, Texas, says that if Compaq and HP products are merged together into one line of offerings it will limit the choice of products being sold in the channel, thus reinforcing the notion that solution providers have to emphasize value-added services for their clients.

"What it boils down to in the channel is that right now, when you think of Compaq and HP, you are going to sell one or the other most of the time," Romick says. "Now you are only going to sell one, so there will probably be less times that I am pitching different products. It is going to really, really boil down to the question of what else you have to offer. Everybody has been trying to get out of the hardware business as it is."

On the relationship side of things, Romick says that since Compaq and HP have been positioned similarly as far as their channel relationships, he doesn't expect to see big changes in the way the combined company reaches out to its partners.

"These two companies were positioned in the channel very, very similarly," he says. "They both have some direct activity going on and Web activity going on, and they were both building services businesses and things of that nature. I don't think there are any major worries about what they are going to do different, because if they took the Compaq model or the HP model, it would mean about the same thing to the channel. Unless they come back to the channel and say, 'OK now that we have a major workforce, we can truly alter the way we do business.' But I don't see them doing that."

Jerry Cogen, executive vice president of Computer Network Solutions in Plainview, N.Y., had a less enthusiastic view on the merger.

"We're a partner for both Compaq and HP, and it's a little puzzling for us right now because they really haven't given much detail," says Cogen. "I'm concerned about what's going to happen with either one of the companies' products."

Cogen says that as soon as the announcement came down, he received several calls and e-mails from clients who were concerned about prospective purchases. He questioned the timing of the move in light of current market conditions and wondered if it would negatively impact sales by making cost-conscious buyers wary of investing in either Compaq or HP products until there is a better picture of where the combined company is going. He even mentioned the possibility of turning to Dell as the 'safe' alternative right now.

"Who would even go out and buy a server right now from either one of these companies if they don't know which one is going to be supported 6 months from now?" Cogen says. "It's disconcerting, but on the other hand because we're partners with both of them, we can support either product. It's an interesting play.

"Then of course you have the question of the government and any antitrust concerns that might come up."