Business Today Net Special

H-P + Compaq = More Hardware

Fine, snagging Compaq makes H-P the biggest personal computer vendor in the world. But services—a more profitable and relatively recession-proof business—does not get any better at the new entity, particularly in India. Saving grace: its new and formidable server portfolio will give both IBM and Sun a run for their money. It is one phone call to Digital Globalsoft CEO, Som Mittal, that could possibly affect Indian IT services companies. A call from a friend at 6 AM on September 4, 2001, broke the news to a stunned Mittal that Hewlett-Packard had announced it was buying Compaq Computer Corporation.

By Ashutosh Kumar Sinha

Arun Thiagarajan, President,
H-P India

Forty four months ago, the then Digital Equipment Corporation had been bought over by Compaq. Mittal had lived through those days too. But neither he, nor Compaq India CEO Balu Doraisamy, are willing to comment on the implications of the merger in the Indian market. The terse official statement from H-P India is no different. Sitting on the other side of the fence, rivals IBM and Sun are choosing not to officially comment on the merger either.

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But when Doraisamy and H-P India President Arun Thiagarajan go through the number crunching exercise, it should be heartening. Together they stand tallest in the branded PC market in India with a 15.2 per cent share in 2000-2001. In a market where the assembled PC market is about 57 per cent of the 1.7 million PCs that are expected to be sold during this financial year, that is a healthy number. The nearest competitor in the market is now HCL with a 7.3 per cent market share and IBM, a failure in the home PC market, with 4.9 per cent. With both Compaq and H-P having their own PC assembly units in India, the advantages of scale could be help drive costs down further.

A similar story is true about the overall server market, with Compaq and H-P accounting for 44.1 per cent of server revenues. The nearest competitor, IBM, has a 26 per cent share in the market.

While the intention may to be take on IBM in the services market, it seems to too ambitious a target. Says Ravi Sangal, President, and IDC INDIA: "The new entity lacks both the depth and width of IBM, which is far strongly positioned in technology, software or services." For the record, IBM services business of IBM in India is over Rs 500 crore. H-P and Compaq's figures are not available but IBM is the largest services company in India.

Worse, the confusion that results because of the merger and H-P and Compaq's competing product lines could work to the advantage of rivals Sun and IBM. Says a rival: "The company has too many server, storage and operating system platforms which will have to be rationalised."

It is not IBM only which is competition in India for the merged entity. Computer Sciences Corporation (CSC), the $10 billion services company, recently starting its operations in India and EDS, the $22 billion services behemoth is only getting stronger. With the merged entity's focus being services---both Compaq and H-P had separately bid for a 56 per cent stake in CMC, the government controlled IT services company in which disinvestment is round the corner---it may not be surprising to see Indian companies feeling the heat.

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