The next big merger

Carly pulled it off. Now it’s everyone else’s turn.

When Hewlett-Packard finally completed its US$18 billion merger with Compaq Computer Corp., many industry experts said that her real challenges were only the beginning. Eliminating portions of its workforce and blending the two corporate

cultures could be more difficult, one might argue, than overcoming some of the legal and regulatory hoops chief executive Carly Fiorina has jumped through this past year.

For a victory party, there was a somber undertone to Fiorina’s speeches, as she foretold a future of the IT industry that could only be described as lethargic. Though she repeatedly went back to the complementary nature of the two firms, on Day 1 of the new HP Fiorina admitted that consolidation was the inevitable outcome of the downturn in the economy. This downturn, she implied, will have more long-term impact than many of her colleagues seem willing to admit.

If Fiorina is right, the HP-Compaq drama was merely Act I of what will be a series of mega-mergers to take place over the next few years, and if nothing else, she’ll have a head start over everyone else. Though HP was the larger company, Fiorina was largely successful in one of her other goals related to the deal: she got many of us to call it a merger rather than a takeover. This was partly the result of Compaq chief executive Michael Capellas’ public displays of comraderie — he and Fiorina really do seem like a happy couple — and an ongoing economic situation that made it plausible to imagine the two companies deciding there is strength in fewer numbers.

So who’s next? Here are a couple possibilities:

IBM and Dell: A few pundits kicked this one around soon after the HP-Compaq news broke last September. It didn’t seem likely, but that was before Big Blue issued one of its rare profit warnings and rumours began flying about the company laying off staff. It can only be envious of Dell’s vertical integration strategy, which it has tried to co-opt in a hybrid sales model that, like Compaq, HP and so many others, was poorly communicated to many of its resellers. Despite the potential for efficiencies, however, there is far more overlap here than there was between HP and Compaq.

EMC and Sun: They seem to hate each other so much they seem like characters in a sit-com who trade insult after insult before falling in love. Unless it is satisfied by its partnership with Hitachi, Sun might consider at least spinning off its storage business to take advantage of the many enterprise customers who have a long history of EMC legacy systems. Storage has always been a fiercely competitive market and has some good prospects over the long haul, but right now the losses are piling up, and the bleeding is going to have to stop sometime.

Nvidia & ATI: We always accept these two as a sort of junior version of the Intel and AMD rivalry, but in time there may be room for only one dominant graphics chipmaker. Foundries have gotten incredibly expensive for all of the processor manufacturers, and this could bring consolidation to those involved in graphics CPU sooner than the rest of the market.

If more mergers are in the offering, they may not come this year. Many tech firms have probably watched Fiorina’s struggles and wondered if the effort required to match her crusading spirit is worth it. On the other hand, these things tend to happen in clusters (remember AOL/Time Warner, Bell Globemedia, etc.). Spring is a traditional time for courtship. There can be little doubt many of the best-known names in the business are wooing each other as we speak.

sschick@itbusiness.ca

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