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

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