They said that cut-throat contests would inevitably lead to some suppliers going to the wall in the wake of the merger.

Wang Sheng-hung, an official with the Market Intelligence Centre of the quasi-official Institute for Information Industry, said that because of the merger, the number of contracted Taiwan suppliers would be reduced. In order to survive, the suppliers would have to cut prices even though their profit margins are already low.

"But due to the merger, the ’new H-P’ suppliers may get bigger orders," Wang said.

The mentality was reflected on the Taiwan Stock Exchange on Monday, with some "H-P concept" stocks including Compal Electronics Inc, Quanta Computer Inc, and Asustek Computer Inc buoyed by the deal.

According to a joint statement released by HP and Compaq, the new company will retain the Hewlett-Packard name and is expected to have annual revenues of US$87.4 billion with operations in 160 countries.

The merger, unanimously approved by both companies’ boards at the weekend, would save US$2.5 billion in costs per year.

Analysts said that the merged company is unlikely to shift its future orders from Taiwan to elsewhere in the world, given the competitive nature of Taiwan’s information technology sector.

"Over a long term, the ties with the ’new H-P’ are expected to remain close," he said.

Compaq purchased US$9.7 billion worth of IT related products from Taiwan last year while H-P bought nearly US$5 billion.

"Taiwan is very strong in the PC-related fields. And therefore it is very, very uneasy for the ’new HP’ to switch its orders to other countries," Chiang Chih-hau of Barits Securities Investment Trust Co said, adding that its major rivals IBM Corp and Dell Computer Corp also purchase a lot of IT products from Taiwan.

In a bid to retain their competitive edge, Taiwan manufacturers have switched their production lines abroad, largely to the Chinese mainland to cash in on cheap land and labor.

(China Daily 09/07/2001)