Call it a “Hail Carly” play.
When one beleaguered giant buys another, you can smell the desperation. It’s oozing from the corporate pores at Hewlett-Packard and Compaq with the announcement that the HP would buy Compaq in a stock swap.
The antitrust regulators should let this deal happen with few modifications. In practically every market that has serious potential for long-term profit, even the combined company, despite its new heft, will be an underdog or face heated competition.
That’s actually the rosy scenario. It assumes, contrary to the history of big buyouts, that HP can effectively swallow Compaq without major woes. Combining these companies will be complicated, Carly Fiorina, HP’s chief executive, said with gross understatement on Tuesday.
When Fiorina told analysts that the combined company will lead the field in consumer technology, her bragging had a hollow sound. It’s hardly thrilling to be the leader in a market that is dull, nearly devoid of innovation and barely profitable.
The Intel-compatible PC is a commodity. It’s controlled not by hardware companies but by Microsoft, which essentially dictates how manufacturers will build the machines and then tells PC makers how the screen will appear to customers. Dell, the most serious competitor in the U.S., innovates almost solely in managing the supply chain.
Some worry about the fact that the majority of PCs sold in stores today are made by HP and Compaq. But there are other ways and places, which frequently are better alternatives, to buy a home PC. Besides, the barrier to entry in PC manufacturing is not exactly high. You don’t see new entrants clamoring to join today’s cutthroat price wars.
In servers, the companies combined will have a significant market share — large enough that the European regulators will be taking a close look. Yet the lower end of the server market is becoming commoditized, too. At the high end, Sun and IBM are more aggressive than ever.
Below the PC, in the handheld market, there’s potential for some interesting developments. Compaq, with its hot-selling iPaq, and HP with its Jornada are increasingly serious competition to the Palm-compatible handhelds.
Can the bigger HP become a leader in services, recovering momentum there after last fall’s aborted buyout of PricewaterhouseCoopers? Maybe, but it’s bizarre to think that a buyout of Compaq is the most efficient way to do this.
Let’s hope HP won’t find redundancies in the research units of the two companies. There’s little enough serious research going on anymore in corporate America, but Compaq and HP are doing some of it.
Wall Street’s initial reaction, to pummel HP’s stock, doesn’t necessarily mean much. The financial community has been spectacularly wrong on just about everything in the past couple of years, after all. These wizards sold us the Internet stock bubble, when anything tech-related was gold, and now are punishing everything with a technology angle — except monopolies, which the share-buying crowd always likes. One might even interpret the Wall Street response as a signal not to look for any special dominance coming out of this combination.
Just as likely, the market was placing a no-confidence vote in people. Compaq’s CEO, Michael Capellas, has ricocheted from strategy to strategy during his tenure, and so has Fiorina during hers. In many ways both executives have been trapped by circumstance, but tough times are when the great leaders emerge.
Fiorina was never as terrific as her early notices. She’s not as bad as her current critics say, even if one suspects she’s been given more time than many other CEOs might have had in the same position. But it’s increasingly difficult to believe in her as the CEO of a company that plans to rival IBM.
She was genuinely bold when she tried to buy PricewaterhouseCoopers. The Compaq buyout is more like the hail-Mary pass the quarterback launches on the last play of the game. This deal seems borne more of despair than daring.