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Gartner Predicts Failure of HP-Compaq Deal

IT analyst firm Gartner gives the Hewlett-Packard Co. deal to acquire Compaq Computer Corp. a better than 50-50 chance of falling through.

"The challenges mean that HP and Compaq will not complete the deal (0.6 probability)," Gartner analyst Andrew Butler wrote in a research note following the HP-Compaq announcement of Monday night.

In any event, Gartner advises customers to use caution regarding the firms' products for now.

"If they do complete it, the companies, their customers and partners will likely experience at least two years of major uncertainties across all their business activities. This deal would likely not benefit any of them, including most customers."

Gartner says the companies have failed to make a convincing case for the merger. The expected cost saving of about $2.5 billion by 2004 and other unstated benefits seem insufficient to offset the substantial uncertainties the deal would raise, the analyst firm alleges.

"The combined HP/Compaq would face the challenge of creating coherent strategies for four server architectures, seven operating systems, four storage architectures and several service businesses," Butler wrote.

Meanwhile, Microsoft CFO John Connors, speaking to financial analysts on Thursday, was much more supportive of the deal.

"We've got a lot of respect for the people and the management team in both companies. If I look at what's in the paper today, or maybe the reaction, I have a little bit of a contrarian view in that now is the time to be doing bold things when everybody thinks the world is going to hell," Connors said.

Take the ENT poll on the HP-Compaq merger.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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