The key growth drivers are all in place.

IBM has proven that the services/solution centric approach to the market can build shareholder value.

We think this will be an incremental boost to the overall network attached storage market and is an incremental revenue opportunity for EMC, and therefore positive for EMC. We believe Network Appliance will face more competition from EMC, but we did not see any new major software that hugely disturbs what is occurring in this space.

This move makes HP look much more like IBM and, in our opinion, makes strategic sense.

Competition will intensify but IBM should be able to gain share as HP undergoes a Herculean integration task.

Both HP and Compaq have been pursuing several common strategies: Becoming more services-centric, Wintel in the enterprise, storage as a technology growth engine, and moving to an overall solution sell. There will obviously be regulatory and enormous execution hurdles, but, with the addition of Compaq, HP should be better positioned to move forward on every one of these fronts.

We think this may be perceived as a near-term negative, as some had been looking for the new servers to be announced.

While we expected management to lower expectations for the current quarter, the magnitude of the reductions caught us by surprise.