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To: art slott who wrote (7301)	9/4/2001 11:38:16 AM
From: Arrow Hd.	Read Replies (4) of 8092

Hi Art, just as surprised as you are regarding HP/Compaq. Assuming a smooth transition, the pony here is the expected 2.5 billion dollar savings per year which will improve margins a good bit. But this assumes they maintain their revenue and growth numbers. As we saw with the Compaq/DEC deal, DEC basically went away from a hardware standpoint. All that was left and what Compaq really wanted was the service business so they paid more than what it appeared on the surface. Compaq is in a stronger position than DEC was so it is a little different but the PC businesses sell into the same space and though the combined market share makes them an instant leader they may not hold this leadership position at this high a level. Corporate buyers will spread their purchases and the new company will get one shot not the current two shots so there will be some erosion not an explosion IMHO. The printing space will remain strong but would have anyway with HP's product line-up so no big deal here. Servers and data storage will gain some synergy but have some of the same effects that the PC space will suffer so I am neutral on that piece. Consulting will benefit from a skills match in complex deals where the new company can bid more competently with regards to skills availability and also from a raw body count. A plus here. But this will be a tough merger where there will be a lot of internal battles that will take focus off of the everyday business needs of both organizations. Compaq was not a fallen angel and they will want their share. IBM benefits as follows: --Having a new HP that is around their size takes all anti-trust scrutiny off their operations other than standard issues such as what MSFT is fighting. There will be no size issues any longer. --IBM will be much more free to buy whomever they want. The IT world lived with a much larger IBM forever so if IBM goes on an acquisition binge to get much larger than the new HP/Compaq company who should care. With a decimated IT industry the picking is good. With selected sectors suffering immeasurably those that are relatively small pieces of the entire IT market could get gobbled up. IMHO, IBM could immediately grab a bleeding company such as EXDS. EXDS could easily declare Chapter 11 so there is a good salvation story here. Even stronger companies in next generation sectors such as wireless and mobile computing would be fair game. If they wanted to get back into networking they could grab a JNPR or someone like that. This deal gives IBM Nway flexibility to expand at a time when expansion is cheap. It avoids a lot of the anti-trust over-hang or least mitigates it somewhat. And IBM still represents one stop shopping through their services, product lines and alliances. The new HP/Compaq company does not. They do not have products for all needs even with the merger. Again, the pony is the economy of scale within the sectors they have and that is not enough to challenge IBM.

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