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.
