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HP To Keep Pavilion And Presario PCs

5/13/2002 02:00:00 AM Eastern

If it were not for the media and legal circus that surrounded the nine-month-long merger process between Hewlett-Packard and Compaq, consumers might not even know that the latter has been removed from the retail computer scene.

HP is still in the process of releasing all the retail details about its post-merger PC operation, but what has been made public is the HP Pavilion and Compaq Presario desktop PC and notebook computer lines will continue, said Michael Capellas, formerly Compaq's CEO and now HP's president and COO. What has been eliminated by the merger is the HP Jornada handheld computer series, which is being phased out in favor of Compaq's popular iPaq handheld.

An HP spokesperson said there are no immediate changes planned for the two companies retail computer lineups, but several changes are expected sometime this summer. The lines will continue to be supported by two separate sales teams, but only for the next 90 days, after which the two will be integrated, she said. Sales offices in Houston, where Compaq was headquartered, and Palo Alto will be maintained, she said, and Duane Zitzner, who heads HPs personal systems group, will have offices in each location, the spokesperson said.

General integration and elimination of redundant positions is expected to result in 15,000 layoffs from the newly combined company, said Carly Fiorina, HP's CEO. Employees will start receiving their layoff notices today and Fiorina said it will take six to eight months to complete the process.

The decision to retain the Pavilion and Presario brand names was based on market share, Capellas said. The thought behind this decision was that since the lines were evenly matched in share, and retailers want to offer as many brands as possible, it was best to keep both. Meanwhile, the Jornada was clearly behind Compaq's iPaq so it will now be sold as the HP iPaq, he said.

Best Buy for one is happy with HP's decision to keep both brands.

"Best Buy believes that the entire computer category remains viable when we provide the kinds of options that can best suit the needs of every customer. We can't be thinking about willingly contracting the number of computer options offered to our shoppers," said David Morrish, senior VP.

Retailers have been given no specifics concerning their ongoing relationship with the new HP, according to Aaron Schachter, VP of New York-area retailer Datavision. He told TWICE last week that the HP and Compaq lines will continue to compete against each other as they had before, and there is no apparent change in his day-to-day dealings with HP.

Some industry analysts and retailers were surprised by HP's choice to continue with both PC brands. Steve Baker, director of IT research for NPDTechworld, Reston, Va., said the decision contradicts the idea that the merger was done to create synergies and eliminate redundancy because having two brands will require two marketing and development teams.

On the positive side, he said, it does offer the opportunity to develop a tiered premium and entry-level system to retailers. Although "then it would be hard for them to decide which brand would be which," he said.

Toni Dubois, PC analyst for ARS, La Jolla, Calif., initially was caught off guard by the decision and thought it odd, but upon reflection saw the upside.

"The two companies do complement each other with Compaq bringing its successful configure-to-order business to HP, but I do wonder how they will bring this off," she said. Dubois added that she could see HP using the Presarios as strictly a configure-to-order line, while the Pavilions were kept on store shelves.

Dubois also thought it odd that HP was increasing its SKU count when most PC vendors, including Compaq, have gone to great lengths to streamline their lines over the past few years.

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