It is looking increasingly likely that the proposed takeover of Compaq by Hewlett-Packard will be approved by the US government. Corporate customers of the two firms are therefore facing some uncertainty when planning their purchasing strategies, especially for Unix and high-end Windows systems. Currently both firms offer proprietary Risc systems, and it is likely that there will be consolidation.
Many analysts said that in view of the economic slowdown, regulators will be wary of blocking the deal and causing economic uncertainty. 'Even if this is seen as two major market players joining forces, there are certainly other major names out there that can reposition themselves and compete effectively against them,' said Kevin Arquit, an antitrust attorney at law firm Clifford Chance Rogers & Wells.
Arquit argued that the weak state of the economy in general and the IT industry in particular will probably influence the regulators. 'When the economy is in the state that it's in, there may be a tendency for regulators to give more of the benefit of the doubt,' Arquit said.
Other experts agreed, predicting that though regulators will probably conduct an exhaustive review over the next six months or so, in the end they will give their blessing.
Last month, HP chairman and chief executive Carly Fiorina and Compaq chairman Michael Capellas announced that the boards of both companies had agreed to HP's plans to buy Compaq in a stock deal initially valued at $25bn. The combined company would have over 130,000 employees spread across more than 160 countries.
The Federal Trade Commission, which is reviewing the deal, will probably focus on whether the pairing would create a firm with power to unfairly influence markets. It is likely to concentrate on the companies' PC businesses, where the merged firm could have a strong position. John Soma, a law professor at the University of Denver and a member of the US Department of Justice antitrust team that litigated against IBM in the 1970s, said, 'The one major overlap is obviously in the PC area, but their overall market share is still so low that I doubt the government will have a prohibition on them merging together.'
According to market research company Gartner Dataquest, HP and Compaq had about 18 percent of the worldwide PC market based on units sold during the second quarter of this year, which would make the merged company the top PC vendor. Dell, which currently holds the number one spot, had 13.1 percent of the market.
But while the melding of HP and Compaq would create the world's largest PC vendor, their combined holdings would still account for less than a fifth of the market. In comparison, Intel owns about 80 percent of the microprocessor market.
Rather than creating a behemoth that could exert monopoly control, Gartner analyst Todd Kort said the merger will probably benefit the firms' competitors. 'I think Dell, and maybe IBM to an even greater extent, will experience some gains as a result of this,' Kort said. Compaq customers uncertain about the company's future may switch to rival suppliers, he said.
But one potential stumbling block is that US regulators may be uncomfortable with HP and Compaq's potential dominance in the retail PC market, where the companies account for more than 50 percent of sales at US stores, said Hillard Sterling, an antitrust expert at law firm Gordon & Glickson. 'There would be significant market power and concentration in the retail area,' Sterling said. 'It's certain that some restructuring or divestitures would be necessary.'
But a representative of the Consumer Federation of America (CFA), which lobbies the US government to enforce antitrust measures, said the merger would not give HP and Compaq the kind of feared industry control that could result in higher PC prices. 'It does not strike me as a concentrated market,' said Mark Cooper, an antitrust expert at the CFA, who has led many of the group's efforts in condemning the business practices of Microsoft. 'The PC industry, historically, has demonstrated extremely competitive characteristics. This is not the cable industry.'
Roger Kay, of analyst firm IDC, agreed, and said that HP and Compaq will probably consolidate their PC lines, eliminating overlaps such as the Compaq Presario and HP Pavilion, which is likely to lose them some customers.
