Compaq Users Leery of Buyout

As shareholder vote approaches, some users looking to make a switch.

Compaq Computer Corp.s enterprise customers are increasingly uneasy about the proposed takeover by Hewlett-Packard Co.

With the shareholder vote on the proposed merger less than a month away, some Compaq customers have begun switching vendors. Others said they are prepared to jump ship if product lines are eliminated or services disrupted.

"Since the merger announcement in September, weve changed our desktops [from Compaq] to Dell [Computer Corp.]," said Michael Sherwood, director of IT for the city of Oceanside, Calif. "Were still using Compaq servers, but depending on the outcome of the merger, we might consider other vendors outside of Compaq for servers."

The majority of more than a dozen system managers contacted by eWEEK said they will monitor developments before making decisions. However, many acknowledged they are prepared to bolt should the deal result in unwanted product or service changes.

"Well be watching it and seeing what the repercussions are with regard to their dual product lines," said Marshall Fernholz, procurement manager for the American Medical Association, in Chicago. "If theyre going to maintain Compaq manufacturing of the PC desktops and servers, then that will play out well for us. But if they abandon that line and stay with the HP line, well be looking to see what our options are."

Its still anyones guess as to whether HPs proposed $25 billion buyout of Compaq will go through. The deal, approved by the boards of both companies, still must be supported by at least 50 percent of each companys shareholders. While Compaq shareholders are expected to approve the merger March 20, the outcome of HPs vote March 19 remains unclear, with the company facing heavy opposition from the heirs of its two late co-founders. Altogether, the Hewlett and Packard families control about 17 percent of HPs shares, but heavy lobbying by lead merger opponent Walter Hewlett could swing votes against the deal.

Should shareholders and U.S. regulators approve the deal, HP, of Palo Alto, Calif., will face the massive task of melding a work force of more than 130,000 employees, with operations in 160 countries, as well as managing a variety of product lines, many of which overlap.

On the customer side, one key challenge facing HP will be in convincing Compaq customers that the new company wont be like the old one that customers chose to avoid in the first place.

"We had been an HP customer, but we left them for Compaq because of various service and delivery issues," said a system manager for a major department store chain, who declined to be named. "We certainly hope that theyll pick up the good pieces of Compaq to make sure that they can continue to deliver the kind of service weve come to expect."

Compaq customers have expressed concerns that HP would cut the product lines they prefer. "Our greatest fears are that a lot of the good Compaq products might be canned for HP products, which may not be of the same quality," said Oceansides Sherwood. One Compaq customer said he understood the reasoning for the merger but said it left him uneasy.

"I think ... they need to do it," said David Brinker, senior vice president and CIO for CSE Insurance Group, in Walnut Creek, Calif. "But youre always concerned when a merger takes place what the end result is going to be."

Several system managers said they still dont understand why the companies chose to merge, despite their repeated attempts to assure customers and investors of the wisdom of their decision. "These big ... mergers only seem to benefit the brokers that put them together," said HP customer Robert Reeder, vice president of information and communications services for Alaska Airlines, in Seattle. "For every one that comes up roses, I think there are 10 that dont make any sense." Reeder said the merger presents more risks than benefits. "I dont see any upside to it," he said.

Compaq is trying to assure buyers that merger or no merger, they will continue to be taken care of. "Whatever happens, we are going to support their products; were going to continue to service their needs," said Compaq spokesman Arch Currid, in Houston. "People need to understand were not going away."