In the end of June 2001 Michael Capellas, the newly appointed CEO of Compaq , one of the major home-pc manufacturers , published a “180 day plan to transform Compaq into services behemoth”. In the earlier two years Compaq had concentrated on leading the market as an Internet infrastructure provider but their aim with the restructuring was to place more emphasis on software and their target was to make the firm more like IBM in its character. To go further into Compaqs reasons with the 180-day plan is of no relevance in this blogpost and will not be done but we would like to, once again, point out that Compaq aimed to improve their software development activities and building its services business, possibly through acquisition (for which they had budgeted $500 million). Now enjoy the irony and laugh along with us as you´re sitting – or standing…or whatever you´re doing – 6 years later and know for a fact that Compaqs destiny turned out to be something very different to what they had guessed. The acquisitive became the victim of acquisition.
In May 2002 HP and Compaq merged to one for the price of 25 billion USD. The main reason for HP’s acquisition of Compaq was that both HP and Compaq wanted to raise their market share, and HP wanted Compaq out of the way as a competitor. Although the acquisition also made their cost lower, however, an acquisition that combines two extremely similar product-type companies mainly hopes to increase the market share. Furthermore HP wanted to give more pressure to their competitor, Dell.
The result of this acquisition can be discussed from different perspectives but the outcome of the acquisition is that Hewlett Packard became one of the top players for many different markets in
desktops, laptops and servers. To show the significance of the alliance Hewlett Packards new symbol on their products was “HPQ”. HP from HWP(Hewlett Packard) and Q from CPQ(Compaq). Hewlett Packard can after the merge with Compaq offer IT infrastructures, personal computing and access devices, global services, imaging and printing. The company can after the merge with Compaq serve more than 1 billion customers in over 162 countries. Later on in 2002, Hewlett Packard introduces its first table PC, the Compaq Tablet PC TC1000. The highly portable and wireless-enabled tablet PC combines a full functional PC with the power of digital ink. The list is pretty much endless but the outcome in terms of money is very difficult to say since we don’t know the alternative development (Compaq buying HP) of these two companies. The acquisitive became the victim of acquisition.
Over n’out
/Team 5
3 Comments
October 23, 2007 at 9:47 am
Team 4
We think that there are three reasons that HP bought Compaq:
1) To quickly gain market share in computer markets.
Compaq is a big manufacturer of computer components, and it can help customers assemble computers, too. In fact, Compaq had not yet founded their brand share, but HP had already had their brand share in the computer-related components market, for instance, HP printers.
Therefore, once HP merged with Compaq, both of them were able to share their brand share and market share.
2) To acquire computer manufacturing technology.
HP wanted to enter into the computer market, so it needed technical support. That is why HP bought Compaq. Also, HP buying Compaq helped lower their costs because they were able to integrate their business processes. Nowadays, we can see that HP always produces lower-priced computers to compete with its competitors.
3) To increase the value of both companies.
After HP bought Compaq, investors believed this newly-merged company would have great potential to become a leader in the market (actually now HP has the most market share in NB market), so they were willing to invest. Therefore, the stock price of HP will increase, that also means HP can get more capital for investing on marketing or R&D than before.
What if in the reverse, Compaq buys HP? Could Compaq also acquire the same effects listed above?
We think “yes”. However, HP is more well known than Compaq, so even if these two merged together, people may still not recognize Compaq, so Compaq cannot increase their market share as rapidly as happened in the situation in which HP bought Compaq.
Anyway, the acquisition between HP and Compaq is beneficial for both of them, no matter whether HP bought Compaq or Compaq bought HP.
October 23, 2007 at 3:20 pm
Comment on Team 5 from team 8
Many computer-based companies transfer to the service-oriented businesses. In this market, HP and Compaq are slight less than the IBM, the leader and largest company. The merge of the two companies, HP and Compaq, could create a stronger giant to compete with IBM and even merge the technology and offer great values to the customers. But the different merge may cause the bad results!! HP and Compaq both have the same goal of the marketing. HP should deal with many overlapping units between HP and Compaq and it is a very tough work. HP/Compaq and IBM face many competitors, one of which is Dell computer. Dell’s efficiency comes from two factors. First, they sell directly to their customers so their distribution channels are simple and cheap (no dealer markup). Second, they build-to-order, which keep inventories, low. Low inventories mean that, when Intel drops the price of its processors, Dell doesn’t have a lot of the old expensive processors sitting around. Dell can reduce the prices on its computers faster than its competitors because the components that make up those computers are the latest and cheapest. So far, no other PC maker has been able to match Dell’s cost structure. HP/Compaq should adopt a similar strategy to keep competitive.
October 23, 2007 at 4:00 pm
We think that the main reason for these companies to merge -or one acquiring the other- was to gain market share quickly by acquiring at the same time the other’s customers base. It is a good idea to stay under HP’s umbrella since their brand reputation is better than Compaq’s, but that could be a bad strategy if they just pretend to maintain the same amount of customers just by increasing their product portfolio, or their manufacturing capabilities. In order to be competitive in the computer industry they have to follow the leaders in the market, and try to enhance the value of their offer, as the example of Dell posted by team 5. We read that Compaq, before being acquired by HP, was trying to build the same business model that Dell was using (build-to-order manufacturing model), but one issue that we think they had to consider after the acquisition was the time required to stabilize and figure out how to coordinate their capabilities -since it seems that both were very similar at that time- and to become more efficient gradually. We have to take into account that a bigger manufacturing company is more difficult to manage, and consequently less responsive to changes, that is a great disadvantage in this industry.
It seems to us that the previous strategy of Dell trying to follow the steps of IBM would give them a more competitive position in the market, by entering into an industry that is growing and becoming very profitable. Now, it will be more difficult for them to change or innovate their business model, and if they want to compete with Dell, maybe they will have to wait and redefine their manufacturing process, and provide a more customized service to their clients.
Team 6.