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Hewlett-Packard to Buy Compaq... Now What?

Two Losers Don't Make a Winner

A $25 Billion-Deal Only Adds to HP's Already Big Challenges

PHOENIX, Sep. 4 - "Two wrongs don't make a right," goes an old saw. "Two losers don't make a winner," would be an analogous headline describing today's $25 billion-Hewlett-Packard acquisition of Compaq.

If in doubt (re. the "two losers" term), just check the HP and Compaq stock charts. Both look like downhill ski slopes. HP stock dropped from $60-something to $20-something in the last 12 months. Compaq's shares plummeted from about $33 to $12 in the same time frame. And that's before the "ski jump" that we can expect after today.

The two computer companies' performance make even the IBM stock look like a relative winner, even though the Big Blue has basically treaded water for most of the last 12 months. Which is why some of the reporters' questions we fielded this morning - comparing the new $87 billion-HP to IBM, were off the mark.

IBM stock has been in the doldrums because the company is carrying too much of its old hardware baggage around the waste. And here was HP now adding some new hardware baggage to its waistline. And that's a "winning strategy?" The folks at Armonk must be laughing for joy.

Nor should one expect any respite for HP and Compaq after today's announcement. We do not see any uphill slopes for the HP stock in the near future. The only question in our minds is if today's deal may mark the end of a solid ground downhill slope, and the beginning of a ski jump? (i.e., meaning a free fall?). Time will tell...

Happy bargain hunting!

Bob Djurdjevic

P.S. Today's closing numbers may well mark the start of a "ski jump" for HP and Compaq. HP's shares plunged by 19%, while Compaq's plummeted by 10%, despite a surging stockmarket for most of the day.

UPDATE, Sep. 5, 2001: For two follow-up media stories on this IT industry "megadeal," check out the Wall Street Journal, "HP's Fiorina Takes on a Hefty Job" , and the New York Times, "Wall St. Finds Fault With Computer Merger" - both Sep. 5, 2001 stories.


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Volume XVII, Annex Newsflash No. 2001-01
September 4, 2001

Editor: Bob Djurdjevic
Published by Annex Research

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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