Can HP and Compaq make their marriage work?

With the Gitex computer show raising the profile of all things IT related in the region this week, a good deal of curiosity among visitors focused on the impending takeover of Compaq by Hewlett-Packard to create an IT giant ranked alongside IBM.

AMEInfo spoke to HP director John Saw, who was in Dubai for Gitex, about the intending marriage and quizzed him about what the deal would mean for the Middle East. At the moment HP's competitors are laughing at a deal that they say will paralyse an industry giant and scare off customers. How does HP respond to this charge?

'We are taking advantage of the most depressed IT market in 12 years. Our buyers are holding off at the moment from making decisions, so is the merger likely to affect business? Not at the moment, this is the best time to be doing a merger.

'Of course, our rivals are attacking us and I would be doing the same if I was in their shoes. But we are genuinely excited by the prospects of creating an industry giant to rival IBM with an unrivalled product range. All of the other companies will be niche players by comparison and unable to match us for the breadth of solutions on offer'.

However, there is much misunderstanding in the Middle East about what the merger of HP and Compaq entails. Mr Shaw is keen to stress that the two companies remain entirely separate at the operating level and that there is no contact between them at present.

'For one thing this is a regulatory requirement, and for another both Compaq and HP have to hit their revenue targets. Some people are pre-assuming product line cuts that are totally unfounded and again rivals are trying to spread confusion. Any move to carve up the market between the two companies in the Middle East is expressly forbidden, and relationships between executives are not allowed to move outside normal business practice.

'At the stage we are at now, we have to satisfy the regulatory authorities that we should be allowed to merge,' explains Mr Shaw. 'That will take four to six months so it will probably be May next year before we can formerly begin the merger of our operations.

'We have announced the new board line-up and last week announced the seven top executives below the board. And there will be more announcements to follow on the executive committee that will be sorting out day-to-day matters such as IT integration in advance of the merger clearance. Nothing will be touched in more sensitive areas'.

All the same, by Gitex 2002 Compaq will be gone, and the new HP installed in its place. Clearly some product lines will be eliminated as a part of a $2.5 billion in cost synergies promised at the time of the takeover announcement, and whether that means job cuts in the Middle East remains to be seen.

Regional managers are certainly looking forward to creating a larger team by combining the 120 HP and 250 Compaq staff, and with the region's IT industry expected to grow by 16% next year against 24% this year, the prospects look considerably brighter here than in the rest of the world. Mr Shaw sees depressed IT markets in the US lasting well into next year, and was very hesitant about predicting when an upturn might occur.

Meanwhile, HP looks set to continue winning major contracts around the Middle East, and will most likely benefit a good deal from merging forces with Compaq.

Indeed, with Gartner forecasters predicting that only 50% of the present names in the IT industry will survive the next three years, HP may be setting a new trend, and some of its critical rivals may well find themselves in similar circumstances soon. By then HP will have re-invented itself and be ahead of the game, or at least that is what its executives hope.

But regulators and uncertain financial markets may still upset this happy couple's progress to union, and ink is not yet dry on this particular marriage. To that extent the uncertainties that delight its opponents remain.