HP Buys Compaq: Another One Bites The Dust

Andrew Neff finally called one right. During the holiday weekend, HP and Compaq announced that HP was buying the slightly smaller Compaq. The deal is being valued as a US$25 billion stock deal, and the combined companies had sales of US$87 billion during each of their last completed 12 month cycles. This was one of the things recommended by Bear Stearns analyst Andrew Neff for the computer industry on January 17th of this year, the same time he recommended that Apple switch from the PowerPC to Intel.

For its part, HPis CEO, Carly Fiorina calls Compaq and HP two complementary companies. From A C|Net report:

"This is a decisive move that accelerates our strategy and positions us to win by offering even greater value to our customers and partners," Fiorina said in a statement. "In addition to the clear strategic benefits of combining two highly complementary organizations and product families, we can create substantial shareowner value through significant cost-structure improvements and access to new growth opportunities."

In reality, the two companies actually have enormous overlap in their businesses:

HPis buyout of Compaq will be fraught with difficulty, according to Ashok Kumar, an analyst at US Bancorp. The two companies are very much alike. Roughly one-third of HPis revenue comes from PCs, notebooks and servers. About half of Compaqis earnings come from the same sources. Their Unix server businesses are similar. Layoffs were expected, Kumar added. Both companies are being squeezed financially in nearly all of their markets.

"There are so many overlapping units there is no complementary benefit," he said. "The problem with HP is that they have a lot to deal with and if they want to get Compaq, it is going to be really tough."

There is no indication as of this writing on whether or not the Compaq name will be continued, but the combined companies will be called HP. US$87 billion in annual sales will place the newly formed HP as the #2 PC maker, just US$3 billion behind IBMis US$90 billion. It also places HP well ahead of the new #3 maker, Dell. Dell had annual sales of US$33 billion last year. There is more information in the C|Net article we referenced.