HP/Compaq face service business problems

Hewlett-Packard's merger with Compaq creates an organisation rivalling IBM in size and aiming to match Big Blue's success as a...

Hewlett-Packard's merger with Compaq creates an organisation rivalling IBM in size and aiming to match Big Blue's success as a service provider.

But it will be a tough battle, according to analysts. Martha Bennett, the vice-president at Giga Information Group in Europe, told CW360: "The combined HP and Compaq services business is not in the same league as IBM Global Services."

To compete, said Bennett, the combined company would need to grow aggressively. "HP and Compaq can offer integration services," she added. But, unlike IBM, they could not offer business process re-engineering consulting, where the highest margins can be made."

Gary Barnett, a senior analyst at Ovum, said: "While the merger looks relatively clean, closer inspection shows the two companies need to do a lot of work to succeed."

He said that, along with expanding the services business, the merged company would have to consolidate products, strategies and sales forces, and at the same time remain focused.

Carly Fiorina, who will take the role of chief executive officer of the merged company, said: "We understand the magnitude of the challenge and the need for discipline and speed."

However, in an official statement HP admitted the business would not see the full benefit of the merger until mid-2004, which casts doubt on how quickly the merged company will be able to offer a viable alternative to IBM Global Services.

HP tried to become a major service player with a £12bn bid for PricewaterhouseCoopers in September 2000 only for the merger to fall through.

Compaq made a serious drive into service provision with its acquisition in January 1998 of Digital, which allowed it to create a business within Compaq tailored to provide Windows server implementations.

But HP and Compaq's combined services operation amounts to a £10.5bn worth of business, less than half the £23bn Global Services business at IBM.

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