Sorry for the bandwidth, but I think this is our concern as well !!!!


SAN FRANCISCO (CBS.MW) -- The H-P Way, one of the most respected corporate
identities in history and the foundation of a Silicon Valley icon, died
Tuesday at age 63.

There are no survivors.

Known as "The Way" to close friends, Hewlett-Packard's inventive spirit
succumbed to a two-year bout with CEO Carly Fiorina that ended with H-P's
acquisition of Compaq Computer.

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Long time admirers said it's best that company founders Bill Hewlett and
David Packard have already passed on, because the value-threatening,
defensive merger that Fiorina struck to stem a competitive onslaught from
Dell and IBM would have killed the two inventors.

"It doesn't go in stride with H-P's past, because they've always developed
their own technology from within," said Bill DeRosa, a fund manager with
Badgley Phelps and Bell in Portland, Ore., who knew The Way back when. "With
this merger, all they're doing is trying to build market share through
acquisition. They're in survival mode more than anything else."

In the past, H-P (HWP: news, chart) has invented itself out of market trouble
by building groundbreaking products. This deal with Compaq (CPQ: news, chart)
is a consolidation, pure and simple. Its executives are giving up. They've
conceded that Dell and IBM are killing them in the market, and that they have
no better alternatives.

What Fiorina and Compaq CEO Mike Capellas are calling a "Brand New Day" for
the computing industry is a funeral wake for The Way.

The only thing H-P has invented in recent years is a sprawling mess. That
unfocused group of products and half-hearted strategies will get even more
unwieldy with the acquisition. There will be an influx of employees with the
same skills the H-P folks already have, and a host of Compaq products H-P
already sells.

Investors beware

This deal is a sham for investors. How can the company continue displaying
its "Invent" logo without violating truth in advertising laws?



In the B.C. era, Before Compaq, H-P already had way too many variations of
its business hardware products - a factor that has limited its profit. The
company sells a tape drive under five different names, creating five times
the stocking, staffing, and marketing requirements.

What happens when Compaq's products are added to the mix, under additional
brand names including ProLiant, Himalaya and Alpha?



For $25 billion (more like $20 billion given the huge drop in the two
companies' shares since the announcement), H-P has purchased a little time.
It now has a short-term market share advantage over Dell Computer, and
several of its server-market competitors.

It quickly will be erased. H-P and Compaq's combined market share in
virtually all hardware segments will shrink over the next few years. You
can't add two companies' market shares together in a merger and retain it
all. The companies have acknowledged that.

That leaves the services business, which will have to grow at breakneck speed
to make up for the hardware sales decline. It's the key to the entire deal.
Fiorina and Capellas know it.

So far, all they've done is pay lip service to services - the market that H-P
has been touting as its future for more than two years.

"The 90s perhaps was the era of the hot box and the point product," Fiorina
said in a Midtown Manhattan event Tuesday. "It is now an era where customers
demand more from their technology and more from their technology vendors.
What they are looking for is end-to-end capabilities."

She has yet to say what more H-P can provide in the services area due to the
merger. Investors should be asking why buying Compaq, a company with a
history of cobbling together other companies' products instead of inventing
its own, will help H-P in its services struggle with IBM.

Where's the value?

H-P keeps preaching that it's on its way to rivaling Big Blue in the services
business. It just needs a few more pieces here and there.

So instead of joining with a true services company, its executives go out and
buy a computer maker that runs a fix-it shop -- one that's nearly as weak as
its own.

Computer industry mergers haven't worked in the past, and this one won't be
any different. H-P and Compaq ought to learn from their own experiences. H-P
struggled for years to integrate its purchase of Apollo Computer in 1989.
Compaq is still struggling with its Digital Equipment acquisition, made in
1998.

Fiorina and Capellas need to explain why they think it's better to struggle
together in building an IBM or EDS-style services business, instead of
laboring separately. That'll be key to digging H-P's stock out of a trough
not seen in four years.

The "global reach" of their combined 65,000 services employees isn't the
answer. H-P said the merger gives them more employees (15,000 of whom they
will promptly lay off) and services employees in 160 countries worldwide. But
that's only 30 additional nations where H-P didn't already have operations.

How is that worth $25 billion, especially when the services employees have
similar skills?

The real winners

It seems that there are two companies that will benefit from the H-P Compaq
merger: Dell and IBM, says Martin Reynolds, analyst with Gartner Dataquest.
While the struggling companies struggle to integrate, Dell (DELL: news,
chart) and IBM (IBM: news, chart) will be gaining market share.

In times of market upheaval, customers are going to go with the most stable
companies they can find. "If I were them, I'd be having a party right now,"
Reynolds said.

To mourn The Way's death, H-P should bulldoze the famed Palo Alto garage
where Hewlett and Packard made their first product. They can use the land to
build a monument that accurately reflects the new company -- a Tower of
Babel.

Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com.

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