A High-Tech Marriage That Computes
Think of it as the all-American marriage of Silicon Valley and Route 128, a merger that could capture both the past and future of American high-tech competitiveness--Hewlett-Packard and Digital Equipment Corp.
Why not? It’s certainly not as crazy as the Apple/IBM alliances. Nor would it be as desperate as the troubled Burroughs/Sperry mainframe merger that led to a wobbly Unisys. This could be a marriage of complementary strengths--not mutually reinforcing weaknesses.
Both companies are global, multibillion-dollar giants with superb technology portfolios, clean balance sheets and proud traditions of engineering entrepreneurship. Can’t you picture DEC founder Ken Olsen shaking hands with H-P’s David Packard as they announce the capstone of their distinguished careers?
Born in the Depression, Hewlett-Packard, with its core of humanistic values and high-tech expertise, spawned Silicon Valley as we know it. Olsen’s DEC, the first minicomputer company launched with venture capital, begat Boston’s Route 128. H-P is well-positioned in the minicomputer marketplace and dominates the computer printer market. DEC is still the global leader in minicomputers--with a customer base exceeded only by IBM--and has done an excellent job of providing a networking infrastructure for its customers.
However, while both companies have enjoyed tremendous success, H-P has clearly done a better job of transforming itself from an entrepreneurial venture into an enduring institution. In the eyes of the market, H-P is hot; the company has accelerated its product-development cycle, captured market share and generated solid growth in the teeth of a recession. Consequently, H-P’s market valuation today tops $17 billion.
By contrast, DEC is seen as a touch slow to market and burdened with a cost-structure that doesn’t reflect the industry’s direction toward so-called open (non-proprietary) systems and its emphasis on the best performance at the lowest price. As a result, DEC’s market valuation today is about $6 billion--about a quarter of what it was just a few years ago.
In other words, Microsoft’s Bill Gates alone is worth about as much as all of DEC. Perhaps the price is right and the opportunity is there for a company such as Hewlett-Packard to make a friendly offer.
“I don’t believe that DEC will be able to pull out of its current tailspin all by itself,” says Terence J. Garnett, corporate vice president of Oracle Corp., a leading software company. “I think there would be an extremely good cultural fit between the two companies.”
“You’d be taking the leading printer company and merging it with a minicomputer company,” observes Sun Microsystems Chief Executive Scott McNealy sardonically. “So I guess that would be complementary.”
Indeed, many of the skills and technologies would be complementary.
DEC’s machines can network and “inter-operate” with other manufacturers’ computers--features that H-P now lacks. H-P has excellent printers and peripheral products.
Neither company has much of a presence on the desktop with personal computers; on the other hand, a combined H-P/DEC would provide the departmental systems and networking infrastructures that personal computers would have to link up to.
“DEC connects to everything,” says Robert Herwick, a Hambrecht & Quist technology analyst. “H-P’s connectivity solutions aren’t as extensive and robust as DEC’s.”
This kind of connectivity is what customers want; indeed, what customer wouldn’t be impressed by combined global and technical reach of an H-P/DEC?
But McNealy points out that a combined H-P/DEC would have a confusing plethora of product lines.
“How many different microprocessors do you think they’d have to support? Seven? 12?” he asks. “We believe in putting all the wood behind a single arrowhead. They’d have lots of wood behind lots of different arrowheads. Is that what their customers would really want?”
Obviously, a merged H-P/DEC would have to rationalize and streamline its product offerings. Then again, what multibillion-dollar computer company isn’t doing that already?
An H-P/DEC merger would give both impetus and opportunity for a serious re-evaluation of both company’s strategies for offering their customers both proprietary and open system architectures.
Would there be layoffs? Of course there would. But there would be anyway. Even Sun’s McNealy acknowledges that there will continue to be consolidation in the computer industry.
Envisioning this merger “would be quite a stretch,” says Hambrecht & Quist’s Herwick. He believes that the companies have too many different computer operating systems and platforms for a successful convergence to occur.
That may be true. On the other hand, if you look at the oddball alliances, consortiums, joint ventures, acquisitions and partnerships that have dominated the information industry the past five years, you have to wonder if such scenarios will dominate future discussions of strategy and destiny in this business.
After all, DEC has had serious negotiations with Apple Computer and AT&T; in the past. If DEC’s stock remains so depressed, who will it be talking with in the future?
Similarly, H-P has grown both internally and through acquisitions. If H-P stays hot, who might become an acquisition target? These strategic questions of opportunity aren’t going to go away.
