If Hewlett-Packard Co. buys Compaq Computer Corp., both companies bank customers could feel some short-term pain without any immediate benefit, but they also could find themselves doing business with a much stronger supplier, industry observers said Tuesday.
The last thing a financial institution wants to learn from a big transaction like this is that what they invested in is going to be discontinued by Hewlett, or is not going to be supported with the degree of energy that Compaq had been providing, said Bill Bradway, the president and a co-founder of Meridien Research in Newton, Mass.
There is always the risk of losing customers if a purchase is handled poorly, Mr. Bradway said. Hewlett-Packard will need to take care to properly plan for the migration and survival of financial institution relationships Compaq has established over the years.
If those customers are neglected, folks like IBM will be all too ready to say, Come with us. We can provide the answers, he said.
The $25 billion stock deal announced late Monday for Compaq of Houston would give Hewlett-Packard revenues of $87.4 billion and catapult it ahead of Dell Computer Corp. as the worlds top personal computer maker.
Hewlett-Packard of Palo Alto, Calif., would trail only International Business Machines Corp., the industry leader, in annual revenue. The deal is scheduled to close in the first half of next year.
Robert Landry, the vice president of research and advisory services at TowerGroup, a bank consulting firm in Needham, Mass., said that, though both Hewlett-Packard and Compaq have had to cut back in the current economic slowdown, Compaq has had more momentum, lately, in marketing to the financial services industry.
In the mid-90s, HP didnt really position themselves effectively as an Internet software and hardware provider, he said. And the net result was that they lost some of their momentum since Sun Microsystems Inc., a smaller company but a leading supplier of Internet servers, picked that up.
Compaq has done a better job of selling products to banks more recently, Mr. Landry said. Originally a seller of PCs, Compaq expanded its offerings to financial services, and its purchases of Tandem Computers in 1997 and Digital Equipment Corp. in 1998, among other moves, cemented a higher-quality transaction processing capability, he said.
This has helped Compaq win new business. On July 24 it announced that it had signed a three-year contract to provide services and equipment to Bank of America Corp. Compaq is now handling computing systems for the Charlotte, N.C., companys nationwide branch network.
Whether Hewlett-Packard would be able to build on Compaqs momentum remains to be seen.
Ellen Walsh, the research director at Gartner Inc. in Stamford, Conn., said that because their product lines overlap, some products from both companies might be discontinued, which could be painful for bank customers.
There is going to be a paring of the number of offerings they have currently, she said. It could force banks into a conversion process, and they are going to have to resolve it where the hardware overlaps.
Because both Hewlett-Packard and Compaq are hardware-focused, customers will not gain right away from the merger, Ms. Walsh said. The deal is not especially complementary because both companies are weak in services, systems integration, and consulting, she said.
Though both companies have been trying to expand those services, their short-term emphasis will have to be on streamlining operations rather than expanding services to the financial industry, she said.
Andrew Efstathiou, the program manager at Yankee Group in Boston, said that in the short run Hewlett-Packard would focus on rationalizing two businesses and cutting costs in the two businesses, not on new products for financial institution customers.
It makes the two businesses more healthy, but it does not mean new product initiatives or new services for financial services, he said. Thats probably further down the road.