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Retailers Fear HP Dominated Computer Mkt.

Retailers and industry analysts joined Wall Street in calling Hewlett-Packard’s proposed merger with Compaq Computer a situation rife with problems for consumers and retailers.

Executives from several national and regional chains expressed a variety of fears ranging from narrowing customer options to HP’s potentially new-found bargaining strength as the only large PC maker in the United States. Two weeks ago Hewlett-Packard signed a definitive agreement to acquire Compaq Computer in a $21 billion stock swap.

Michael Flink, vice president with Levin Consulting, Beachwood, Ohio, did not foresee HP or consumers coming out ahead.

“Emachines will be the big winner in all this,” he said. “A retailer has to have more than just one line.”

Steve Baker, senior hardware analyst with NPD Intelect, Reston, Va., could not see anyone gaining from this situation except a few of HPs competitors. In addition, he thought the PC market too tough for anyone to enter.

“In the short term we probably will not see anyone enter PC retailing, but maybe down the road someone from the Far East might try,” he said.

Retailers, all of whom wished to remain unnamed, worried about how unbalanced the market place will be without Compaq. Some said HP will now have the upper hand in brokering deals and will be able to demand concessions from retailers who will have nowhere else to turn.

Other retailers thought of the negative consumer reaction to the sight of stores filled with nothing but HP desktop PCs, with perhaps just a sprinkling of other brands.

If the deal gains federal regulatory acceptance, the new HP will have the potential to post annual revenues in the $87 billion range and have 145,000 employees based in 160 countries, the companies said in a written release. On the product side, the combined HP/Compaq will instantly start vying with Dell to become the top PC seller in the U.S. and will do the same to Sun Microsystems and IBM in the computer server market.

IDC and Gartner/Dataquest listed Compaq and HP in second and third, respectively, on their top PC vendor list earlier this year.

Once the merger is completed, HP will be organized around four business units: printing and imaging, led by president Vyomesh Joshi; access devices, which include consumer PCs and handhelds led by Duane Zitzner; IT infrastructure led by Peter Blackmore, currently Compaq’s executive vice president of sales and services; and services, with Ann Livermore in charge.

HP CEO Carly Fiorina will hold the CEO slot under the new table of organization, while Compaq CEO Michael Capellas and four other members of Compaq’s board of directors will take seats on HP’s board.

HP said operating efficiencies gained with the merger will hit $2.5 billion per year starting in 2003, with about $2 billion being saved in 2002. The merger is expected to close in the first half of 2002, if it passes muster with Federal regulatory agencies.