Gartner cautions on vendor shake out

Hewlett-Packard has been given a "caution" rating and the future of BEA and Borland is uncertain, said Gartner analysts.

An industry shake out in the next two years will see about 50 per cent of current software vendors disappear, Gartner analysts told delegates at the Gartner Symposium ITxpo 2002 in Sydney this week.

Betsy Burton, vice president and research area director at Gartner Research, said small to medium software vendors will undergo dramatic consolidation due to a tightening of IT budgets and residual affects of the dotcom bust.

The new HP and Computer Associates (CA) were given a "caution" rating by the analyst group. Gartner's "caution" rating means customers should "understand challenges in [the company's] relevant areas; assess short and long term benefit/risk to determine if contingency plans are needed". Gartner looked at the status of initiatives such as strategy, organisation, products, technology, marketing, financials and support in rating the company.

Ms Burton said HP is rated "caution" due to Dell's entry into the printer market, morale within its staff, and confusion over how the newly merged entity would become a strong competitor in the emerging Web services market.

Most of HP's profits come from its printer distribution business. Ms Burton said there is a "Mexican stand-off" with many smaller vendors unwilling to attack HP head on. However this could change with Dell, joining forces with Lexmark and going after HP in an aggressive way, could encroach on HP's market share in the commodity printer market, Gartner said.

"All Dell has to do is erode HP's printer share by four per cent and that's a big impact on HP," said Ms Burton.

Gartner analyst Kristian Steenstrup said, "HP is trying to build up software in anticipation of a drop in revenue from other areas."

Ms Burton added HP "haven't figured out exactly what its software strategy is", particularly regarding Web services which the company has not "clearly articulated".

The shadow of job cuts and staff morale also figured into Gartner's assessment of HP. Gartner expects the resignation of HP president Michael Capellas to be a further blow to the morale of ex-Compaq employees.

"HP has taken a very strong direction to achieve cost savings. But the question is how they will get there; by cutting people and efforts," Ms Burton said.

The warning against CA comes down to financial issues, with the company $3.2 billion in debt. "[CA] still has big debt. They also have market perception issues to reconcile."

Middleware vendors will also feel the squeeze, according to Gartner.

Ms Burton named BEA as a vendor to watch, as big vendors are gunning for its market share. She said Oracle could be a "potential partner" for BEA, because "Oracle needs a complete stack, including an application server component."

Ms Burton also focused sharply on Borland's strategy, and asked "where is it going?"

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