ANALYSIS: Advertising - Agencies await change from Compaq buy. Who will retain the account after HP seals the Compaq merger?

Hewlett-Packard's chief executive Carly Fiorina insists that the key driver behind the planned purchase of rival Compaq is not to achieve economies of scale or cut costs. But her statement is unlikely to comfort the roster of advertising agencies working on the two computer brands in Asia-Pacific. As they sit tight and wait for word on how HP's acquisition of Compaq will play out, it now appears that recent events will test their patience a while longer. The terrorist attacks in the US have thrown a new spanner in the works as the devastation brought financial activity to a virtual standstill for a few days. Even before the unprecedented atrocity, HP had only expected to consummate the record-breaking deal in mid-2002. The merger is merely symptomatic of the consolidation forecast for the bloated computer industry, where already slim margins have become increasingly anorexic. Both companies have not escaped the technology meltdown unscathed. Intense price competition - particularly from Dell Computers - and the stagnant servers and networks market is jealously guarded by IBM, Sun and Cisco. To a certain extent, the merger has been brought about because both firms are struggling to keep their books in the black. They believe the deal will generate US$2.5 billion in savings, with some of that coming from cutbacks in marketing. An obvious result would be a consolidation of the business with fewer agencies. In Asia, FCB handles Compaq's advertising, while HP's business is split between Publicis and its subsidiary Saatchi & Saatchi. Simone Bartley, chief executive of Saatchi & Saatchi, refused to comment other than to ask the rhetorical question: "Are you going to write some fear mongering story?" Bartley has good reason to worry about the impact of the merger. HP is by far Saatchi's largest account in Singapore - the office manages HP's advertising throughout the region. The agencies have already taken a hit from the sharp technology slowdown. Both Compaq and HP reduced their spend this year. Gerry Harvey, chairman of electronics retailer Harvey Norman which has stores in Australia and Singapore, said the PC market had been in decline in the past 12 months, partly because of a lack of product innovation to convince consumers to upgrade. In the expected cutbacks, it's likely that Compaq will bear the brunt of the load when the deal is sealed. Arguing that the deal is more a takeover by HP than a merger, financial analysts believe the Compaq brand will disappear altogether, leaving only the sub-brands to show for the millions the company spent over the years to build brand equity. Although Compaq sells more PCs, the argument is that the HP brand is still the stronger and more established of the two. This assertion is borne out in Interbrand's latest survey, which valued the HP brand at US$18 billion, making it the 15th most valuable brand in the world versus Compaq, which at $12.4 billion was in 24th place. Chris Kyme, regional creative director at FCB, said it was far more expensive to market two brands. He said FCB was still producing ads for Compaq, although the cutback in adspend meant the agency had come to depend on its other major client Samsung, which increased its ad budget this year.

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