Strategy In Question

While the ultimate fate of the merger likely hangs on a Delaware Chancery Court decision expected later this month, solution providers are baffled why current Compaq managers will guide HP's enterprise business if the merger is completed.

"Aren't these the same people that handled the [Digital Equipment Corp. acquisition, and aren't they the Compaq PC folks?" asked Don Richie, president of Sequel Data Systems, an Austin, Texas-based enterprise solution provider. "I was hoping that it would be an HP-run enterprise business. I'm keeping my fingers crossed that the Walter Hewlett lawsuit does something [to stop the merger."

Solution provider concern was sparked after HP announced 150 senior management positions. Of the 18 managers in the new HP Enterprise Systems Group to be headed by Peter Blackmore, currently Compaq's executive vice president of sales and services, 11 are current Compaq executives.

What's more, the Compaq-dominated enterprise group means Dan Vertrees, Compaq's vice president of partner sales and marketing for North America, is the odds-on favorite to become North America channel manager for the group, channel executives said. That leaves Kevin Gilroy, HP's vice president and general manager for North America commercial channels, as the likely head of North America channels for the new HP Personal Systems Group, the consumer PC division.

HP and Compaq declined to comment on the pending appointments, expected as early as this week.

Despite Compaq's past efforts to transform into an enterprise company, $15.2 billion of its $33.5 billion fiscal 2001 revenue came from desktops, handhelds and notebooks, while $10.7 billion in sales came from enterprise computing.

John Sheaffer, president and CEO of Sysix Technologies, an HP enterprise solution provider in Westmont, Ill., said he is so entrenched in the enterprise business that he will be able to adjust to the new HP management structure, but he hopes HP's Hard Deck program will remain intact post-merger. "Hard Deck works."

Meanwhile, nine of the 13 senior executives tapped for the HP Personal Systems Group are current HP managers. Duane Zitzner, currently president of HP Computing Systems, will become executive vice president of the Personal Systems Group.

The drama, however, may be usurped by Delaware Chancery Judge William Chandler III, who last week rebuked HP's efforts to dismiss the lawsuit filed by HP board member Walter Hewlett, which alleges fraud by HP in influencing proxy votes from Deutsche Bank.

Chandler ordered a trial to begin April 23. "I believe the facts as alleged in the complaint support a reasonable inference that the switch of Deutsche Bank's vote of 17 million shares to favor the merger was the result of enticement or coercion of Deutsche Bank by HP management," he said.

In a letter to HP employees last week, HP CFO Bob Wayman denied the charges after a voice mail to Wayman from HP Chairman and CEO Carly Fiorina concerning Deutsche Bank's proxy was leaked to the press. In the message, Fiorina said HP "may have to do something extraordinary" to win Deutsche Bank's votes.

Wayman called Hewlett's allegations insulting and infuriating. "Neither Carly nor I would ever act improperly in any business matter,much less use business assets to secure votes."