The proposed merger between Hewlett-Packard and Compaq has come
under renewed pressure, following the release of a survey which
suggests that an overwhelming majority of Compaq's Alpha server
customers would take their business elsewhere if the merger goes
ahead.
When asked if a successful HP/Compaq merger would result in HP
migrating Compaq's Alpha server customers to an HP platform such as
HP-UX, 90% of a wide sampling of Alpha customers said they would be
dissatisfied and would look at other vendors outside of HP, said
Don Young, an industry analyst at UBS Warburg, which carried out
the study.
"When specifically asked what the [Compaq] customer would do if
asked by HP to migrate from their current operating environment to
HP-UX - the migration path planned by HP - the overwhelming
response is dissatisfaction, with the majority of users planning to
evaluate alternative suppliers," Young said.
The possibility of a mass exodus of Alpha customers threatens the
success of an HP/Compaq merger by potentially capping a huge
revenue stream for Compaq, he added.
Of Compaq's revenues for 2000, excluding any revenue from PC sales,
some 60% - $7.6bn (£5.2bn) - was generated from Alpha-related
products and services. The loss of such revenue would work against
any proposed savings sought by the merger proposal, according to
Young.
"[HP and Compaq] management has a conservative projection of $2.5bn
in cost savings. But every merger has failed not because the cost
savings were not achieved, but because the revenues collapsed,"
Young said.
Warburg interviewed a diverse demographic of Compaq Alpha
customers, ranging in size from 35 to 70,000 employees and
representing a cross section of industries, including education,
finance, medicine, technology and government services. The
interviews were conducted between 28 November and 5 December
2001.
Judging by the responses, 73% of the Alpha customers interviewed
were "generally satisfied" as Compaq customers before the merger
announcement. About 64% said they were "very likely" to buy servers
from Compaq in the future, prior to having any knowledge of an
HP/Compaq merger.
Facing the proposed merger, 45% of the Alpha customers interviewed
by Warburg believed it was "less likely" they would stay with a
combined HP/Compaq company, while 55% said their feelings about
remaining a Compaq customer were "unchanged" by the proposed
merger.
No company interviewed said it was "more likely" that they would
stay with a combined HP/Compaq if the merger went ahead.
Of those that indicated they would be less likely to remain Compaq
customers, explanations ranged from doubts over the future of Tru64
Unix to a lack of confidence in HP enterprise products and
services.
Of those that indicated an unchanged preference, the majority
required more knowledge of HP's product roadmap or had already made
the decision to leave Compaq, Young said.
For current Alpha customers, the prime incentive to stay with a
combined HP/Compaq would be the continuation of existing Compaq
operating systems such as Tru64 Unix and OpenVMS, the study found.
Compaq continuing the present service relationship and hardware
maintenance issues followed as the second and third main
incentives.
Compaq officials have said repeatedly that the company's Tru64 and
VMS operating systems will live on indefinitely, but the hardware
issue creates an additional thorn in the side of Alpha users.
Compaq plans to switch its operating systems from Alpha RISC-based
processors to Intel's Itanium chip platform in 2003. HP will do the
same with its RISC-based chips before 2004. At that point, a
combined HP/Compaq would be an all-Intel computer maker, and
high-end operating systems with lineage from Compaq or HP would be
running on Intel's third-generation Itanium chip, called
"Madison".
For Compaq Alpha customers, putting their faith in a future Intel
chip roadmap that is still in its proof-of-concept phase with a
first-generation Itanium chip creates a less than comfortable
feeling, according to some industry experts.
Also, the majority of Alpha customers interviewed by Warburg
believed the cost of migrating to an HP platform would be the same
as switching to another server vendor.
In an interview this week, Webb McKinney, president of HP's
business customer organisation and the head of the HP/Compaq
integration team, said he was unable to comment on HP's support of
Compaq products prior to the finalisation of the merger.
However, Young said: "HP management argues that the cost savings
inherent in this deal are significant and that a stronger
enterprise computing company will emerge. We, however, believe that
the issue is not whether management can achieve their cost savings
target of $2.5bn. The more important issue is how much revenue will
be lost from the acquired Compaq business."