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Hewlett-Packard to Buy Struggling Apollo Computer

April 13, 1989|CARLA LAZZARESCHI | Times Staff Writer

Silicon Valley computer giant Hewlett-Packard said Wednesday that it has agreed to buy struggling Apollo Computer for $476.5 million in a deal that underscores the increasing competition in the fast-growing market for sophisticated computer workstations.

If completed as scheduled later this year, the purchase will give H-P an estimated 30% of the $4.1-billion workstation market. But analysts said that Sun Microsystems, the current leader in the workstation business with a 28% market share, is likely to retain its No. 1 position on the strength of its new product line unveiled Wednesday.

Workstations are powerful desktop computers with sophisticated graphics displays that are typically used by engineers and scientists for highly technical tasks. In most cases, they look much like personal computers, although they occasionally have larger screens.

Under the proposed deal for Apollo, H-P would pay $13.125 for each of the Chelmsford, Mass., company's 36.3 million shares. Apollo's stock shot up $4.625, or more than 50%, to close at $12.75 in heavy trading on the over-the-counter market. H-P stock slipped 75 cents to $53.50, possibly because of the immediate impact investors thought the deal would have on H-P's earnings.

Although small compared to some mergers in other industries, the Apollo deal would be one of the biggest in the computer business, where acquisitions of major companies have been relatively rare until recently. However, analysts said the computer industry may be ripe for a round of acquisitions of struggling companies too weak to withstand the growing competitive pressures among computer makers.

"Usually these weaker companies just die," said Peter Rogers, a technology analyst with Robertson, Colman & Stephens, a San Francisco brokerage. "What's new here is that one of these weaker companies was actually acquired by a competitor."

Analysts said the proposed deal is a "win" for both sides. H-P will get the technological advances that Apollo has developed in computer graphics and its Unix operating system software. In addition, the Palo Alto company has an opportunity to broaden its product line and expand its East Coast manufacturing and sales operations.

Apollo, analysts agreed, was saved from virtual collapse. "Apollo has had some good products, but not good management," said Jay Stevens of Dean Witter Reynolds, a New York brokerage.

Added Rogers: "Apollo was saved from itself. It was growing at one-third the industry rate and was having trouble staying profitable."

Founded in 1980, Apollo moved quickly to become a leader in the fledgling workstation market. But it ran into difficulties as big computer makers, including H-P, and younger upstarts, particularly Sun Microsystems, moved aggressively onto its turf and overtook it.

Apollo, No. 4 in the workstation market behind Sun, Digital Equipment Corp. and H-P, squeezed out a profit of $2.1 million last year on sales of $654 million.

H-P, an industry pioneer founded in 1939, had sales of $9.8 billion last year from a broad range of computer products.

Analysts were not unanimously in favor of the deal. Apollo, which has been slashing prices to remain competitive, is viewed as a second-rate producer, said Salomon Bros.' Mona Eraiba, who was unenthusiastic about the acquisition.

"There are better things to buy for $500 million," she said. However, she said H-P's size and strength means the acquisition carries very little financial risk. "They can afford to make mistakes," she said.

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