BUSINESSThe Michigan Daily - Wednesday, September 5, 2001-7A
*Hewlett-Packard buying Compaq for $25 billion
Deal would allow merged
companies to surpass industry
leader Dell Computer Corp.
SAN JOSE, Calif. (AP) - High-tech giant
Hewlett-Packard Co. is buying Compaq Com-
puter Corp. for about $25 billion in a block-
buster merger bringing together two rivals
struggling to survive in the battered computer
industry.
The stock swap announced Monday night
creates a behemoth that currently has 150,000
employees and $87 billion in revenue - about
the size of IBM Corp. - with products not
only in the personal computer business but
also in computer servers, printers and high-
tech services.
Both Palo Alto, Calif.-based HP and Hous-
ton-based Compaq have been hurt by technol-
ogy sector downturns in the past year and each
company imposed layoffs to deal with shrink-
ing profits.
Another 15,000 jobs will be cut as the com-
panies combine, lowering the eventual total
work force to 135,000, Compaq chief execu-
tive and chairman Michael Capellas said at a
meeting with analysts.
Compaq and HP are Nos. 2 and 4 in world-
wide PC sales, but their combined total would
surpass leader Dell Computer Corp., accord-
ing to the most recent figures from Gartner
Dataquest. Compaq ranks first in worldwide
server sales, while HP is fourth.
"This is a decisive move that accelerates our
strategy and positions us to win by offering
even greater value to our customers and part-
ners;' said HP's chairman and chief executive,
Carly Fiorina, who will keep those posts at the
merged company.
The company will still be called Hewlett-
Packard and will keep its headquarters in Palo
Alto, though it will have a substantial presence
in Houston. Capellas will be president.
The merger is subject to approval by share-
holders and regulators, and European antitrust
authorities are also expected to examine the
impact of the proposed deal.
Once the merger closes, which is expected
to happen in the first half of 2002, the new HP
will be 64 percent owned by HP shareholders
and 36 percent owned by Compaq sharehold-
ers. Capellas and four other Compaq directors
will join HP's board.
"It's an extremely strong match for both
firms, particularly at the executive level with
Fiorina and Capellas," said analyst Rob Ender-
le of Giga Information Group. "She's more of
the charismatic visionary, he's more of the
operations person. The two of them together
should be able to take the combined firm
places they couldn't go separately."
Investors were not impressed. In early after-
noon trading, shares of Compaq were down 46
cents to $11.89, about 75 percent from its peak
in early 1999. Shares of Hewlett-Packard were
off $3.26 to $19.95, more than 70 percent off
its high last summer.
HP and Compaq said the deal would save
them $2 billion a year by 2003, but Gartner
Dataquest research fellow Martin Reynolds
said that won't be easy. Both companies, he
said, have long product lines that customers
will not want to see phased out.
The deal comes as the computer industry
suffers through declining sales - a trend
blamed on a saturated market and the slump-
ing worldwide economy. Compaq lost $279
"This is a decisive move that accelerates our
strategy and positions us to win by offering even
greater value to our customers and partners."
- Carly Fiorona
Hewlett-Packard Chief Executive Officer
million in the most recent quarter; HP posted a
net profit of $111 million in its last quarter,
but that marked an 89 percent decline from the
previous year.
In June, Capellas outlined a broad reorgani-
zation plan bringing Compaq's services divi-
sion into the forefront in the company's work.
Hewlett-Packard has moved in a similar
direction under Fiorina, who has brought
about a broad reorganization of the 63-year-
old Silicon Valley institution since taking over
in 1999. Fiorina, who majored in philosophy
and medieval history at Stanford University
and once worked as shipping clerk at the com-
pany she now heads, has come under intense
criticism in recent months for repeatedly low-
ering her forecasts for Wall Street.
Some analysts have suggested that HP get
out of the PC business, which was a money-
loser for the company in the last quarter.
Compaq was founded in 1982 by three exec-
utives who left Texas Instruments: Rod Can-
ion, Jim Harris and Bill Murto. They sketched;
their first product - a portable PC that could
run the same software as IBM's new PC - on
a paper placemat in a Houston pie shop before
presenting it to venture capitalists.
Hewlett-Packard came out of similarly hum-
ble origins, it was launched in a Palo Alto
garage in 1938 by the late William Hewlett
and David Packard with $538 of their own
money.
I -.
Report indicates
economy may be
about to rebound
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NEW YORK (AP) - For months,
the struggling manufacturing sector
has dragged down the U.S. economy,
but new evidence surfaced yesterday
indicating the burden may finally be
easing.
The National Association of Pur-
chasing Management reported that
manufacturing declined for the 13th
consecutive month in August, but at a
much slower rate - a strong sign that
an economic turnaround may be near.
The association said its index of
business activity rose to 47.9 from
43.6 in July, much better than the 44.0
analysts had been expecting.
An index above 50 signifies growth
in manufacturing, while a figure below
50 shows contraction.
Analysts labeled the report encour-
aging and said it points toward a
recovery that could keep the broader
economy out of a recession.
"This is potentially the turning point
* for the manufacturing sector," said
David Orr, chief economist for
Wachovia Corp. in Charlotte, N.C.
Stocks moved sharply higher on the
news. The Dow Jones industrial aver-
age finished up 47.74 points to
9,997.49, while the Nasdaq composite
index finished down 34.65 points to
1,770.78.
The survey outweighed a report
from the Commerce Department that
construction edged down in July, the
fifth monthly decline in a row, as
spending for home improvements
fell sharply. Spending for all build-
ing projects slipped by 0.1 percent in
July to a seasonally adjusted annual
rate of $859.4 billion, the govern-
ment said.
The nation's economy barely grew
in the second quarter, expanding at a
rate ofjust 0.2 percent.
Orr said the most encouraging
development in yesterday's survey was
a rise in new orders, to 53.1 from 46.3
in July.
"In the past when the new orders
index has moed above 50 ... that has
been a reliable indicator that the worst
is over," he said.
In addition, indexes measuring pro-
duction and new export orders moved
into growth territory. Backlogs of
orders, inventories, employment and
imports all continued to show contrac-
tion, but at slower rates.
The index is based on a survey of
purchasing executives who buy the
raw materials for manufacturing at
more than 350 companies.
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.Expedition may have
stabilizer bar defect
WASHINGTON (AP) - The gov-
ernment is investigating a possible
defect in the Ford Expedition's suspen-
sion system, the same problem that led
to a recall of the Ford Explorer and
Mercury Mountaineer last winter.
The National Highway Traffic Safe-
ty Administration has received 14
complaints of failure of the front stabi-
lizer bar links in 1997 and 1998 Expe-
ditions. The agency estimates about
437,000 of the vehicles are on the
road.
The stabilizer bar connects the left
and right front wheel control arms and
helps control the pitch of the vehicle in
turns.
Ford recalled 876,413 Explorers and
Mercury Mountaineers in December
to replace the stabilizer bar links.
Ford spokesman Mike Vaughn said
the company is cooperating with
NHTSA's investigation into the Expe-
dition, but it is too early to speculate
on the outcome.
NHTSA opens any investigation
with a preliminary evaluation, in
which the automaker and the agency
exchange paperwork. That is the stage
*of the Expedition investigation, which
was openel in July and was divulged
in the monthly investigation report
NHTSA released yesterday.
The agency can upgrade the investi-
gation into an engineering analysis,
where parts are examined for defects.
Investigations can lead to a recall, but
many are dropped.
NHTSA closed two other investiga-
tions into popular Ford vehicles after
the automaker agreed to a recall,
according to the monthly report.
Ford is recalling 275,167 Windstar
minivans because a front coil spring
can fracture, due to corrosion. Ninety-
three owners told Ford the fractured
spring punctured a tire, but no acci-
dents or injuries were reported.
The Windstar recall covers only
1997-1998 models registered in north-
ern states and Canadian provinces that
use a lot of salt on the road. Nearly
200,000 of the recalled vehicles are in
the United States.
Ford is also offering an extended
warranty for the problerp on all 1995-
1998 Windstars. The warranty is for,
10 years and unlimited mileage.
Ford also recalled 1996-1998 mod-,
els of the Contour and Mercury Mys-
tique and 1999 models of the Cougar
because of fire risks in the heaters.
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Disney opens new
theme park in Japan
*to rain, huge crowds
TOKYO (AP) - DisneySea
opened its doors yesterday to more
than 15,000 people who braved
each other in a Tokyo suburb.
In contrast to the United States,
where theme parks are slashing
flrices to wouusi 1tome~rs dirino' an