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Stop the Presses: HP Compresses Compaq

The news caught everyone by surprise. Hewlett-Packard was buying Compaq for $25 billion (US) in stock. After both stocks were hit the next day, the deal was worth about $20 billion—even though the announcement boasted that the combined company “Will Have Number One Worldwide Positions In Servers, PCs and Hand-helds, and Imaging and Printing; Leading Positions In IT Services, Storage, Management Software.”

The numbers involved were staggering. Combined revenues exceeded $87 billion over the past four quarters, which would place the new HP second only to IBM ($90 billion) in size. The new behemoth would also have 145,000 employees in 160 countries—prior to staff cuts, which are sure to come mostly at Compaq's expense. If the deal goes through, Compaq as a company will only persist, in the manner of Netscape after AOL, as a “brand”. Together HP and Compaq brands account for about 70% of PC sales through retail outlets; but Dell now leads in sales overall, having moved ahead of both HP and Compaq. This, pundits mostly agreed, was clearly one strong motive for the deal.

Reviews in the mainstream media were mixed at best. Dan Gillmor of the San Jose Mercury News wrote, “It's hardly thrilling to be the leader in a market that is dull, nearly devoid of innovation and barely profitable.” In the UK, The Register wrote:

A braver choice for HP would have been to prise its way into new infrastructure partnerships, swallowing a Nokia or a Nortel. Or even an ARM. But instead of looking forward, HP has looked back and fallen on an acquisition target that looks agreeably like itself only financially weaker.

But in the Linux community, the mood was more upbeat. Linuxcare cofounder Dave Sifry said, “Gee, everyone said that there'd be consolidation in the Linux space, but this is a bit bigger than I expected!”

Dan Kusnetsky, VP System Software for International Data Corp. and one of the leading Linux analysts, says:

In the recent past both companies have been looking for ways to lower their overall software development costs by moving to high-volume, third-party software. This is quite reasonable. It is quite expensive to be a world-class supplier of operating systems.

He adds that the combined company would be supporting as many as eight different OSes, and offers these predictions: 1) since Tru64 UNIX is the lower-volume product and is tied to Alpha, the best features of Tru64 UNIX will be merged into HP-UX and Linux, and then Tru64 UNIX will be retired; 2) the best features of OpenVMS and MPE/ix will be merged into Windows and then one or both of those operating systems will be retired; and 3) the combined company will focus on HP-UX for high-end enterprise tasks, Windows for workgroup and desktop tasks, and Linux for Web-centric computing tasks.

Which isn't exactly bad news for Linux.

—Doc Searls


Doc Searls is Senior Editor of Linux Journal

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