BBC Tuesday, 4 September, 2001, 15:28 GMT 16:28 UK Jobs slashed in biggest PC merger More than 13,000 jobs are to be eliminated as US computer giant Hewlett-Packard takes over rival Compaq in an attempt to shield itself from the global high-tech slump.

The merger is costing HP $25bn (£17.2bn), and will create the world's biggest computer company, with combined revenues of $87bn.

The two companies, which have seen their share prices collapse in recent months, have overlapping interests around the world, and aim to cut $2.5bn in costs as their operations are rationalised.

But investors were unimpressed, sending HP's shares down by more than 10% during the first minutes of trading.

The markets are concerned about HP spending money at a time of gloom for the computer industry, and by indications from the firms that their revenues could dip over the next couple of years.

There are also fears that regulators could force concessions before waving the deal through.

PC giant

When combined, the second and third largest PC makers would overtake Dell Computer as the number one PC maker in terms of sales, according to Gartner Dataquest.

In the market for computer servers, Compaq ranks first while HP is fourth after Dell and IBM.

Even so, the new giant will have a lower market value than each of the two merger partners had last summer when their share prices peaked.

Since then, the value of their stock has dwindled as falling sales and market worries have forced them to lay off several thousand workers and slash their profit forecasts.

Cuts

HP chief executive Carly Fiorina said the firms would not be laying out their full plans for the merger immediately.

But costs would be cut by $2.5bn over the next three years, the company said.

Both companies have cut several thousand jobs in recent months - 8,500 at Compaq and 6,000 at HP - and analysts predict savage cutbacks going forward too.

"They've got to cut out half the new company," said Gartner industry analyst Martin Reynolds.

"This has got to be an epitome of cost cutting. They can't afford the luxury of being nice".

Leader

The merger would create a "global technology leader", the companies said in a joint statement.

"It's a logical move in the consolidation of the PC industry," said Bear Stearns analyst Andrew Neff.

"At a particularly challenging time for the IT industry, this combination vaults us into a leadership role with customers and partners," said Ms Fiorina.

"Together we will shape the industry for years to come," said Ms Fiorina, who will remain chairman and chief executive.

Both companies' boards have approved the proposed stock swap.

Compaq chairman and chief executive Michael Capellas will become HP president.

Falling sales

If the merger is approved by shareholders and regulators, the new combined company would have annual earnings of $3.9bn, 145,000 employees and operations in more than 160 countries, Ms Fiorina added.

Hewlett-Packard and Compaq, which reported annual revenues of $47bn and $40bn respectively, have both seen sales decline drastically in the current industry downturn.

Falling sales have slashed the companies' market values.

Hewlett-Packard's stock, worth $23.21 before trading started on Tuesday, has fallen 66% from its high last summer.

Compaq has fared even worse, down 76% at $12.35 from its peak in early 1999.

-- Anonymous, September 04, 2001

Answers

I think part of the problem with slow sales is because so many companies and people for home use, bought new computers just before Y2K, there isn't the need yet to replace them.

Lately, there are more commercials for computers on TV. IMO,they are really hurting. I think one of the manufacturers is IBM that is trying to sell their wares on TV.

-- Anonymous, September 04, 2001

I saw a notebook for $799 the other day. It could have been a Dell--or maybe IBM, can't remember. But that's a super price.

-- Anonymous, September 04, 2001

That is a good price. I would love to have one so I could use it in other rooms and outside on the deck. Oh well, maybe, just maybe Santa will give in and get me one for Christmas.

-- Anonymous, September 05, 2001

If this deal goes through and Compaq is swallowed, there'll be a lot of cheap Compaq notebooks on the market. I haven't been 100% satisfied with mine, but it's certainly made a difference. As you know, putting my feet up and computing away has been a lifesaver. I guess I've had my Compaq 1245 two years now and it's still operable, although the battery is kaput and I have to use a plug-in mouse cos I wore out the click part of the built-in one. (New ones are around 70 bucks.)

Warning: DO NOT buy a repair contract with ANY computer!!!

-- Anonymous, September 05, 2001

Before I would think about getting one, I would read up on them in the Consumer Magazine. A long time ago, I fell in love with a car and checked up on it in the magazine before buying it, I didn't listen to their advice and bought it. I think there will be even more price reductions in all the computers... because of a back log in their inventory.

-- Anonymous, September 05, 2001

I believe Consumer Reports likes the Dell notebooks best but Compaq aren't far behind--I think! Dells will be cheap soon too. Maybe right after Christmas, when the new college students have been given notebooks for Christmas, the prices will go way down. Of course, given the state of the high-tech economy, there may be bargains sooner than that.

-- Anonymous, September 05, 2001

The thing that really gets me in all of this mess, is that Compaq a few years ago bought Digital. I have worked on Digital equipment since the late 70's. I'm working on their high end Alpha computers at the moment. The Alpha line is what makes Compaq the tops in the large server ranking. What happens to the old Digital line? I can't see HP keeping the Compaq(/Digital) Tru64 Unix around since they have HP-UX, even if it is a better product.

Am I looking at my career going TU now? Damn, I sure hope that the old Digital people get together and purchase that line back.

-- Anonymous, September 05, 2001