A confident Michael Capellas, chairman and chief executive officer
of Compaq, said that his company's merger with Hewlett-Packard
could receive an unexpected financial boost as the combined company
thins the ranks of its component suppliers and uses size to
increase its competitiveness.
With higher volumes on its side, the merged HP and Compaq will trim
the number of suppliers it uses for components such as memory chips
and monitors, creating a significant reduction in costs, said
Capellas.
With the contentious deal apparently having passed its major
hurdles and expected to be finalised next week, Capellas turned to
what he believed to be the acquisition's high points.
"There have been areas of savings that are larger than I thought,
and they came in surprising places," Capellas said.
As a larger maker of PCs and servers, the combined company will be
able to command lower prices from component suppliers to the point
where the company is seeing "substantial differences" in its
materials costs. As the company makes bigger purchases from fewer
suppliers, these cost improvements will increase, he said.
"I think it's very clear that you have long-term success with fewer
strategic partners," Capellas said.
Compaq also announced another plan to lower its costs, saying it
has signed a long-term agreement with FreeMarkets for software to
streamline its supply chain. Compaq will use FreeMarkets'
FullSource software to orchestrate online bidding with component
makers, the company said in a statement.
Industry pundits have questioned whether the deal would help HP
compete more successfully against Dell's trim hardware distribution
model or IBM's lucrative services business. Capellas was pushed to
answer how HP will distinguish itself from rivals and ensure it
does not get trapped between Dell and IBM.
Capellas claimed HP has picked a simpler strategy than IBM's by
focusing on Microsoft Windows, Linux and Intel chips as opposed to
IBM's vast hardware portfolio with a number of operating systems
and chip architectures. Against Dell, HP will use some of the
expected cost reductions in combination with its hefty research and
development efforts to edge out its rival's hardware, he
said.
Capellas also gave some hints about the combined company's product
roadmap, saying that HP's OpenView management software will run
across all of the company's hardware and that a new handheld device
with telephone capabilities was on the way.