History 2001: HP Acquires Giant Compaq for $25 Billion

Hewlett-Packard is expected to acquire Compaq for a sum approaching $25 billion, to form a sizeable entity worth nearly $87 billion.

For the moment, we know only that the current EVP, sales and services of Compaq, Peter Blackmore, will lead one of the 4 operating units of the new HP, heading a $23 billion business division including servers, storage and software.

The biggest question, now to be answered: Compaq and EMC each claimed first place in the WW storage industry. The issue is now moot: the new HP is clearly the winner.

Questions that still remain:

• HDD manufacturers must now deal with a massive (and enormously influential) OEM customer for PC, server and storage system drives. Will this mean further price drops?
• What will be the new group’s final choice for erasable DVD: HP’s DVD+RW or Pioneer’s DVD-RW, to which Compaq has already committed?
• On the tape side, you have HP, which makes both drives and libraries, and Compaq, which doesn’t manufacture them at all in this sector. Is there a risk of fall-out in the current list of Compaq’s OEMs? Overland and Quantum could have legitimate cause for concern.
• As for SANs, HP is primarily implicated at the high end, with partner HDS – with which the company recently extended by 3 years an OEM agreement for the Lightning 9900. Will this arrangement hold to the end?
• What will become of the Compaq/IBM accord that allows Compaq to resell high-end Shark systems, and Big Blue to propose StorageWorks solutions? Between HDS and IBM, a choice will have to be made.
• Compaq has its own, very nice mid-range line of StorageWorks established in the wake of its acquisition of Digital Equipment. Yet its storage subsystems are not compatible with HP’s. One choice is the following arrangement:

1) HDS for high-end storage subsystems that need connecting to mainframes;

2) StorageWorks for the mid-range. It seems unlikely that HP would resell IBM. Moreover, the Compaq/IBM deal was not exactly a success. Did Compaq sell even one Shark? VersaStor should be the core of the agreement, but IBM has had enough.

• It will also be hard for the 2 to agree upon a single strategy in matters of virtualization software, especially since each is already well along with its own offers: Compaq has been working on VersaStor within its Enterprise Network Storage Architecture (ENSA), which was recently expanded, while HP has just acquired StorageApps, which will likely be absorbed in its Federated Storage Area Managment (FSAM) initiative.
• Things will be easier with iSCSI, which is only just emerging, and for which both Compaq and HP have declared their intention of entering the market with products by 2001, for the former and 2002 for the latter.
• How exactly will the 2 different corporate cultures marry? How, exactly, can personalities as diverse as Compaq’s Mark Lewis, VP of Compaq’s Enterprise Storage Group, and Nora Denzel, VP and GM of the HP worldwide storage organization, co-habitate?
• And just how will the two companies’ customers respond to their suppliers’ nervousness about the future of their storage systems acquisitions?

Ultimately, we should expect considerable difficulties between the teams of both companies, and more importantly, some particularly painful human and technological choices. We can also expect EMC, IBM, HDS and all other NAS and SAN players to take full advantage of the restructuring period, however temporary it may prove. For once, one plus one may work out to less than two, at least in the short term.

This article is an abstract of news published on issue 164 on September 2001 from the former paper version of Computer Data Storage Newsletter.