Solution Providers Still Mixed On HP-Compaq Deal

For some solution providers, ISS's support of the does not affect their view of the deal.

Marie Graziano, CEO of Computer Consulting Services, Carrollton, Texas, said she still opposes the deal. "I am not in favor of it," she said. "What is the gain? HP has a good channel attitude. I have sold Compaq for a long time and then they decided to make life incredibly difficult for their channel. And I don't sell Compaq much anymore."

"I'd just as soon not see the deal happen," said Russell Madris, president and CEO of MoreDirect, a Boca Raton, Fl. -based direct IT product supplier. "I'd rather see (HP and Compaq) keep fighting against each other. The more people you have competing against each other, the better it is for the channel."

HP and Compaq people have been offering guesses as to how the merger will work out, but for Natalie Knudson, president of Modern Business Technology, a Madison, Wisc.-based solution provider who works with both, business goes on. "We're not overly concerned either way," Knudson said.

Todd Barrett, networking sales manager for CPU Sales and Service, a Waltham, Mass. solution provider, said he is optimistic about the potential combination. He praised HP Chief Executive Carly Fiorina's commitment to the channel.

"It sounds like Carly has built up some momentum," Barrett said. "It may add some benefit to the SMB (small and medium business) base and give us more leverage to compete. They really need to consolidate and simplify things and not be all over the map. If that is their intent, we welcome that. Our only other choices are Dell and we get zero help from them, and IBM which we can't make any money on. So I guess you could say we are optimistic by default."

Other solution providers continue to remain gung-ho about the merger.

Stephen Allen, president of Integrated Technology Systems, a New York-based HP solution provider, called the ISS recommendation terrific. "This gives HP the road to expansion," Allen said. "(With Compaq,) they will be better able to compete with IBM, and distance themselves from Dell."

HP, by increasing its consulting business as part of the merger, will be in a position to use profits from that business to invest in R and D to increase competitiveness against Dell, said Allen. "HP invests heavily in R and D, but without a profit stream it is hard to compete against Dell, which has almost no R and D," he said.

If the merger goes through, the future of the vendor depends on how well it executes, Allen said. "If what Carly (Fiorina) says in the ads and memos about savings that result from the merger are true, it will be a big boost for HP," he said. "If it doesn't go through, I don't see much of a roadmap for HP."

Hope Hayes, president of Alliance Technology Group, a Hanover, Md.-based solution provider working with both vendors, said she is very happy with the ISS vote, and hope the merger goes through. "The merger would give HP a strong presence, and result in a company taking the best of both vendors."

For instance, said Hayes, Compaq's desktop business would be big boost to HP. However, while Compaq has a lot of good software, much of it is proprietary to Compaq environments, while HP is committed to openness. "The merger will get rid of some of the deadwood, like Compaq's proprietariness," she said. "They may be the leader, but if they stay proprietary, someone will kick them out of the way."

For Gabe Baumann, president of Noveltek Capital Co., a New York-based investment banking and research firm, the ISS recommendation is a "big boost" for Fiorina and the HP management team.

Without a last minute "wild card," the proposed merger will be approved by HP shareholders, said Baumann, who attended last week's HP analyst meeting. "Long term, the complimentary aspects of these two companies should create a really powerful powerhouse," he said. "This will allow them to be a stronger competitor against Dell. It is kind of like sacrificing the present for the future. Two years out, the combined company will be worth much more than the prospects of each of them separately."