HP, Compaq Stir Things Up

Electronic News, Sept 10, 2001

SOME HEWLETT-PACKARD CO. AND COMPAQ COMPUTER CORP. investors might be unhappy with the plan for the pair to merge, but Kirk Pond, Fairchild Semiconductor Inc.'s president, thinks it's a positive step for component suppliers. Asked in an interview what his thoughts were on the proposed deal, Pond replied "First of all, they are both very good customers. I sell them both a lot of components. To the extent this consolidation in the computer industry makes the computer industry more stable and takes cost out, presumably the reduced cost will result in a better value for the customer with lower-priced computers, which will mean more computers sold, and that is good for Fairchild."

However, Jim Cantore, memory analyst with IDC in Framingham, Mass., has a different perspective. He notes that as both companies combine resources, they will have many identical product lines, such as desktop PCs. For the sake of efficiency, cost-savings and shareholder value, the most profitable product line will likely get the support of the combined company while the other will be dropped. That could mean less systems produced and shipped and as a result less demand for DRAM, microprocessors and other components, he suspects.

"First of all, it is going to take some time before anyone knows if this is a good deal or not," Cantore said. "The combining of forces can be a real nightmare. They will tell you that combining the market share of one plus one will equal two. But the two companies each sell competing machines at competing price-points. They will choose the line with the best margins, the best market share and the best following." Meanwhile, other consolidation challenges have also been cited by various analysts-not the least of which is combining Silicon Valley and Texas corporate cultures, as many IC makers have discovered over the years.