HP Readies Product Roadmap

With the "new HP" comes some news about which products will stay and which will go.

Hewlett-Packard Co. will herald the "new HP" Tuesday morning at a news conference in Cupertino, Calif., hosted by HP Chairman and CEO Carly Fiorina and ex-Compaq Computer Corp. Chairman and CEO Michael Capellas.

The company will also have briefings nationwide with its top 100 corporate customers, during which the company will finally divulge its product plans for the next three years.

Ever since HP, based in Palo Alto, Calif., declared its intent to buy Houston-based Compaq eight months ago, customers have been left to speculate about which of the companies product lines will survive. HP will begin sharing that information with its largest enterprise customers Tuesday, but those decisions arent expected to offer many surprises.

During a highly publicized shareholder fight with HP heir Walter Hewlett, who at long last conceded defeat last week in fighting to block the deal, company executives vowed to embrace the best-performing product lines of each company. The "adopt-and-go strategy" will likely result in HP building its product base around the strongest selling brands culled from either HP or Compaq.

In general, HP is expected to continue to offer its Unix-based servers, Compaqs high-end Himalaya servers, Intel-based servers, storage devices, and commercial PCs. In addition, HPs highly profitable imaging and printing business will remain untouched. Services and software tied to those product lines will survive as well.

But there is one area where HPs adopt-and-go strategy may give way to the unique realities of a market segment—consumer PCs.

While HPs consumer Pavilion PC line outsells Compaqs Presario line, the product brands comprise the two best-selling PC brands in retail stores. Should HP phase out Compaq Presario line, it would likely give up valuable shelf space at retailers as well, virtually assuring a decrease in sales.

As a result, one analyst expects HP to continue to sell both Pavilion and Presario brands.

"If they consolidated brands, they would in effect concede shelf space to their competitors," said Nathan Brookwood, an analyst with Insight 64, in Saratoga, Calif.

But market analyst Daniel Kunstler, of J.P. Morgan, in San Francisco, doubts whether retailers will go along with HPs dual branding.

"I dont know if they can preserve all that shelf space," he said. "While I have no clear indication which way retailers are leaning, over time theres a certain logic to not having so many eggs in one vendors basket, especially for a valuable commodity like shelf space."

In the end, the sales of each brand will likely determine their future, Brookwood said.

"If youre a retailer, you look at what sells," he said. "If theyre both selling well, I doubt they would make a change just because theyre made by the same company."

In making decisions for its broader product offerings, especially those impacting enterprise customers, HP will seek to soothe concerns by declaring its continued support for each company best-known brands, and a relatively slow phase-out of less-popular, but profitable, products, such as Compaqs AlphaServers.

For very high-end computing systems, HP is expected to adopt and support Compaqs NonStop Himalaya servers, which are currently used by 14 of the worlds 15 largest stock exchanges, as well as financial institutions and telecommunications providers.

HPs decision to adopt Himalayas was probably largely aided by Compaqs decision last summer to migrate those systems from their current MIPS-designed processors to Intel Corp.s 64-bit Itanium chips, a product HP co-developed. Previously, Compaq had planned to integrate its own Alpha chips into the Himalaya, but abruptly shifted direction last summer when it announced plans to stop making Alpha processors by 2005.

Looking back, Compaqs Alpha decision in June, disclosed less than three months before its merger deal with HP was announced, clearly removed a potential obstacle to combining the two computer makers. However, executives with both companies have denied suggestions that the decision to drop Alpha was in any way related to private buyout talks going on at the time.

Possibly easing the concerns of AlphaServer users, sources said HP will largely stick to Compaqs planned phase-out of the Alpha processor, which it acquired from Digital Equipment Corp. in 1996. The decision means the company will still release two more versions of the 64-bit Alpha chip are expected to be released before the line is phased out.

"I was concerned for a while that HP might do something problematic, like decide that really dont need that next iteration of Alpha," Brookwood said. "But Ive heard theyll keep the Alpha line going as planned, which should smooth any transition."

As for Unix-based servers, HPs roadmaps will remain unchanged, owning to the companys existing strong position in that market. Worldwide, HP is the second largest seller of Unix systems, based on revenue, according to research firm International Data Corp. HPs position is even more dominate in the midrange market, consisting of systems selling from $100,000 to $1 million, where HP is the market share leader.

Compaqs products will get the nod again in Intel-based servers, where the market-leading Proliant line will eventually replace HPs NetServer brand. HP will phase out its NetServer Intel-based servers by the end of the year.

The company also will go with Compaqs iPaq PDAs over its own Jornada line.

For the time being, the company will maintain both storage lines.

"If theres one area they havent made any hard choices, it appears to be in the storage business," Brookwood said after a meeting Tuesday morning between analysts and HP executives. It remains unclear what impact that might have on HPs 3-year-old partnership to resell Hitachi Data Systems storage devices.

Regarding the decision on Intel-based servers, Brookwood said it was a toss-up.

"Theres really no significant difference between the brands," he said. "I dare someone to tell me the major differences between a four-way Xeon NetServer and a four-way Proliant."

Already, the signs at all the Compaq buildings have been changed to "HP," and the Web sites have been merged. Going to www.compaq.com brings up the message, "compaq.com is now part of hp.com." Also, many of the business systems, from employee computers to e-mail, have been integrated.