Friday, September 21, 2001

Desperate times call for desperate mergers?

Every merger comes with enormous execution headaches. The Hewlett Packard-Compaq union is certainly fraught with challenging hurdles. Particularly so at a time when just about everything else in the computing business – from revenues to profit margins – is getting smaller.

Already, analysts are predicting that the massive product overlap, possible brand confusion and potential internal conflict over whose product lines shall prevail will hurt the combined entity’s bottom line in the short run. To add insult to injury, company morale is expected to hit the curb with 15,000 jobs earmarked for lay-off.

However, given the current difficulties in the economy and the PC business, the merger appears to be their best hope for survival. HP would have been in serious trouble if Dell were to acquire Compaq instead.

The folks at IBM must be watching this entire episode in quiet glee. For years, critics have derided the company as “It’s a Big Mistake”. Now, look who’s having the last laugh?

But enough about the synergy (an equally derided term in the Internet world these days) that HP and Compaq can derive from their “marriage”. The bottom line is: how will this merger affect the average consumer like you and me? Lesser competition and, consequently, higher prices perhaps?

Not likely. Market leader Dell will continue to use cutthroat pricing to bleed competitors and capture market share. We just have to keep our fingers crossed that it doesn’t become another Microsoft.

Yet merger isn’t the only desperate measure taken by beleaguered PC makers. In a drastic move, Gateway shut down all its offshore operations and headed home. Still, I thought the company could have given it a last shot with Windows XP just around the corner.

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