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HP Buys Compaq
MaxVlast was the first to report: "The New York Times is reporting that HP is buying Compaq to form the second-largest computer company (after IBM). Wow."
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If I remember correctly, Compaq had eaten up a lot itself. Didn't it do Tandem (high end corporate mainframe like machines) and whoever did the Alpha (Digital, right)? I don't see how those have really grown, but maybe they've got some eye on some of Tandem's technologies for their midrange line. But you'd have to think that Compaq has a bit of indigestion from it.
Now, here comes HP, buying up Compaq? Well, at least Alpha/Tandem seems like a better fit for HP than it ever did for Compaq.
Anyhow, it seems like HP is picking up a LOT of baggage that they're going to end up throwing away. Sounds like an awfully risky business venture.
With this one, I'd have to say that Fiorina has some balls
- Hewlett-Packard to Cut 6,000 Jobs (July 27, 2001)
- Compaq's Revenue and Income Fall (July 26, 2001)
- Hewlett Profit Falls but Beats Expectations (August 17, 2001)
- Compaq to Emphasize Computer Services (July 17, 2001)
- Market Place: Compaq Announces More Layoffs (July 11, 2001)
Big time mergers are usually between successful companies or at least where one of the companies is having a particular successful run, this looks like a merger of companies are both fucked. Also considering the amount of overlap in their products, expect more layoffs.Sad, indeed.
Pending regulatory approval, the new company will hold a 19% share of the global PC market. Dell comes in second at 13%. Also interesting HP-Compaq will hold a 37% share of the market for high-end servers. With such a 500 pound gorilla on the field, it would definitely be nice for them to emphasize Linux support.
The big loser in the deal - Lexmark. Compaq had been one of their largest customers for bundled printers.
- Carpe diem, quam minimum credula postero.
I'm amazed... wow!
However, I think it's bad that HP is buying Compaq, instead of the other way around... I've never been impressed with HP's products (other than printers, which are the best), particularly their servers or workstations.
I've always preferred Compaq's to theirs. It will be sad to see the end of the Deskpro workstations and ProLiant servers, which were always a pleasure to install, set up, and even repair. I've had to replace several customer's paper-thin motherboards in HP NetServers... Compaq servers are built to Millspec, like most of the IBM servers. HP's are more plastic and flash, much like Dell servers.
Ms. Fiorna has pretty much led HP down to ruin since jumping off Lucent just before THEY went to ruin, so entrusting her to lead this new beast may be a shaky proposition. I don't really see how swallowing Compaq will really gain HP anything new, as the only really interesting technology Compaq had (Alpha) they've pretty much given away. I see this as HP gaining a lot of overhead, a lot of revenue, but little in the way of additional profit, as Compaq has the very same market problems HP did.
Looks to me like the only REAL gain HP makes is getting a MAJOR competitor out odf the way...
=== The price of freedom is eternal vigilance
Enjoy your holiday. This merger is cool news for an otherwise boring news-less day.
Pat
Compaq snapped up Digital a couple years back. Digital had a ton of industry intellectual property... probably more than anyone other than IBM. Networking, CPU design & fabrication, Relational DB, clustering, DASD, Messaging, etc etc.
...
Compaq couldn't really do much with it, and sold much of it off to Oracle, Intel, Cisco, etc
But not everything was sold to the high bidder. Some of it stayed within the corners of Compaq, waiting for a brighter day.
HP's culture certainly could benefit from much of that technology, and it's far more likely that HP can leverage some of technology to propell itself into IBM's datacenter space.
But the HP deal could weaken Linux a little bit, because HP isn't as much of a Linux advocate as IBM, and is an Intel/Microsoft partner & advocate (unlike Sun).
So, in the end, this deal could help Microsoft and hurt Linux.
Very few mergers succeed, even when there does appear to be some legitimate synergy or corporate fit. On paper it made a lot of sense to combine Chrylser and Daimler. In practice, the two cultures were so different that they seem bent on destroying each other rather than making the combined company better.
Now Carly is going to take two companies, each weakened by current economic conditions, and combine them. Where exactly is the synergy? Two manufacturing organizations, neither the lowest cost nor highest quality in their market, and both in thrall to Intel? That's a good combination.
And so on down the line. Synergy is vastly overrated when it EXISTS, and I have a hard time seeing any hear. Doubling the size of the Titanic would only have caused it to sink twice as fast!
sPh
Compaq management fucked up with the purchases of Tandem and Digital. Totally wasted billion dollar investments. Very sad.
HP made this investment for Digital and Tandem technology, and Compaq's sales and marketing. HP always had stronger datacenter service than Compaq-proper.
Compaq itself is only an interesting brand name and marketing channel. There's no way that HP keep the existing Compaq PC line going. The only advantage of HP buying Compaq is that HP now has one less competitor.
When it comes to marketing a product the main goal is to differentiate your product from your competitors. In the case of PC manufacturers, this is extremely difficult, as there's a lot of competition and everybody uses the same standard parts. Tech support, bundled software and brandname works to differentiate between "mom & pop" assembled computers but between "big-name" manufacturers there really isn't much difference (i.e. as you mentioned, Gateway is pretty much screwed). Interestingly enough this article singled out Apple as the only company that can truly differentiate themselves from the pack.
As we all know, the PC market is quite saturated. Most people who are going to buy a PC have bought one and PC manufacturers are now almostly completely reliant on upgrades to existing computers to drive sales. In this kind of a market differentiation is going to be important; the question is, how are they going to do it? Since Microsoft really isn't going anywhere it's quite likely that it'll be in the form of proprietary hardware. While a manufacturer can get a better volume discount on generic parts, gross margins on more custom hardware are much higher. witness the 20%+ margins of laptops compared to the razor thin margins of desktop PCs.
Compaq has already started on this trend with some of thier iPaq line and I think we'll see more of this in the future. In the current industry climate the small guys (like Gateway) aren't going to last long and it seems that mergers are the key to success. With only a few "big name" PC vendors out there it will be a lot easier to push proprietary hardware than it was in the days of the PS/2.
As long as "standard" hardware can still be purchases then it won't affect the geeks much, but let's just hope that standard PC hardware is still supported at large. I'd hate to see the latest and greatest hard drives, RAM or video cards only supporting IBM or HP motherboards. Mergers the size of this one bring us a lot closer to the possibility of a much more closed PC market.
- j
Boy, now there's a winning strategy. Two companies bleeding red ink out their corporate asses decide to merge with stock swaps (no hard assets, no strategy, no intelligence exchanged or used.)
This is a deal to stir up stock prices and bugger all else.
So what'll happen?
Tata Alpha...
Compaq's clients will get irritated by the loss of corporate focus.
HP's clients (who are HP's clients?) will do the same.
The stock market, still reeling from the trillion dollar loss of Y2K will get irritated at the sheer pointless attempt to maniputate stock prices in some direction other than the death spiral they have been in.
Great. Another lose-lose situation.
MSBPodcast.com The opinions expressed here are my own. If you don't like 'em... Think up your own stuff.
Amazing isn't it how one poor decision leads to an avalanche of further massive expenditures, good money following bad? HP decided it didn't want to spend the resources on the next generation of PA-RISC, so it decided to partner with Intel on Itanium. Unfortunately this was in time to concede huge markets to Sun, a company that has chosen to go against Wintel in both hardware and software. So HP missed out on the boom. And now it's trying to make up ground in the downturn. Look near the bottom of this article from Forbes. Since 1994! HP has been caught in a trap where it is perceived that its flagship processor will be phased out. Under those circumstances it is impossible to grow that part of the Unix business. So HP has been caught trying to sell "NT workstations", expanding into selling consumer PCs, anything to generate the slightest bit of revenue.
Meanwhile Sun and IBM went on developing their next generation 64 bit processors. After the downturn ends, and it will end, who are going to be in a better position, companies who sell their own chips or companies that are fighting to be Intel resellers? What exactly will be the barrier to one's competitors also becoming Intel resellers if that is right?
What no one seems to want to acknowledge is that if Dell continues to hold the lead in efficiency, there really is no reason for any other major player to be in the commodity Intel PC business. It doesn't matter if you're twice, three times, whatever Dell's size. If Dell is more efficient, if Dell can make money and expand even in a downturn, it's only a matter of time. And Dell can use its current strong position to keep moving up into higher revenue markets.
The combined HP/Compaq will not be able to cut a better deal from Intel than Dell can because Dell has always been an Intel-only shop, the most loyal one. Dell's competition in laptops is Sony not from anything HP/Compaq does. The only area HP/Compaq has an edge is in PDAs.
Let's think--who will survive selling PCs in five years and why. Dell wins because they are the most efficient. Sony wins because they can bundle multimedia goodies and sell at a premium, plus if PCs are getting to be more like commodities, Sony has the edge in consumer electronic design. Apple stays alive by staying off Intel and also exploiting its reputation in education and multimedia. (Although in education it is once again Dell that is the main competitor, not HP or Compaq.)
What's especially absurd is that neither HP nor Compaq can exploit what makes Dell so efficient because they can't solve the problem of how to sell directly without alienating the middlemen distributors. This problem is impossible to solve with the companies' present business model.
The prospect of trying to combine a corporation whose roots are in the Bay Area of California with one whose roots are in Texas--how come no one questions these catastrophic mis-marriages of disparate corporate culture? Houston, Texas and Palo Alto, California?! What a joke.
Considering that the iPAQ is the only halfway-decent PocketPC to date, this has major implications for the PDA world. Especially since the iPAQ is also used by the most successful Linux-on-PocketPC distribution to date, MicroWindows....
--GrouchoMarx
Card-carrying member of the EFF, FSF, and ACLU. Are you?
Hmmm.. it seems as if this merger is not only to knock out operational expenses, if not also another competitor in three arenas. HP was losing to Compaq in the PC segment, and also the intel standard servers. Both Compaq and HP have had a hard time getting a real large install base for thier UNIX line. Compaq just licensed out the Alpha processor technology to Intel. So which OS will be the first to drop? HPUX or Tru64 and OpenVMS?
I would place my bet on HPUX. HP has too much 32-bit baggage to carry over into the new Itanium UNIX standard (even though IBM will not be joining that party) and Tru64 has no 32-bit baggage to carry over since it was 64-bit to begin with. Tru64 (or the AlphaServers for that matter) were finally being accepted in the market as powerful and versatile alternative to AIX/HPUX/Solaris. I would personally want to see Tru64 go on, but we'll see.
Cheers,
Justarius
- There are some that call me . . . . . . Tim.
I am the Spirit within The Machine.
When mergers like this occur during the wonderful times of "irrational exuberence", the resulting behemoth has to pay down an asset called "Goodwill". This is what they (over)paid beyond asset value for the company that they euphorically, and often stupidly, bought.
In the case of the huge AOL/Time-Warner merger, note that their balance sheet still has a $126,618,000,000 asset called "Goodwill and other intangible assets" recorded in June, 2001. This asset may look impressive on first scan, but the fact is that AOL has to pay this down over many years according to, I believe, requirements of accounting standards (GAAP).
Many smaller companies have serious "indigestion" from this effect and sometimes have sudden "charges" of billions to pay for previous lapses of good business judgement in the past. And wouldn't it suck if the stock price of the merged, over-stuffed company rapidly plummeted? I know that there are folks reading this who personally know what I am talking about.
In the merger between HP and Compaq, for obvious reasons the resulting "Goodwill" asset will be beneficially minimized. Correct me if I am wrong, but it looks as if the new HP is paying $25.0B for $23.9B of Compaq assets. This is going to create a behemoth all right, but one with out a food coma.
If HP and Compaq really want to get together then the conditions at present are optimal (unless they want a really big-ass number on their balance sheet for ten years).
Consider the size of these companies. Buying a competitor is just the first step. Truly merging on an operations level will probably take serveral years.
Yay. ANOTHER big corporate merger.
Call me paranoid, but IMO this is just getting ridiculous. I lost all faith in the government's enforcement of the concept of anti-trust when they let AOL and Time Warner merge. Of course, (HP + Compaq) < (AOL + TW), but come on...
How many huge corporate mergers are we going to have? Soon we're just going to have one giant corporation controlling everything. My video card's boot message ("3Dfx Interactive Inc.* \ A subsidiary of the AOL-Time Warner-Microsoft-Intel-ABC-NBC-CBS Corporation") will be true one of these days, at the rate we're going.
Notice the words "buying a competitor" in hillct's post. On a smaller scale, such as at the local-local level, this isn't such a big deal. But when you take two large corps that are competing against one another (plus only a couple others) for business nationwide, and let one buy the other, that's one less choice for the consumer. It's also one (much) larger corp that, due to its size, has to spend that much less time worrying about its competition. In the end, the consumer loses.
* Now owned by nVidia. Granted, 3Dfx was having tough times financially, but still...
I pledge allegiance to the flag...
of the Corporate States of America...
There's lots of reasons this could be REALLY bad, but there is a snowballs chance in hell that it could work.
On the higer-end (PC-servers and up), this may bode quite well...
HP has always had great technology, but has generally lacked the capability to take the tech they came up with and get it into a good product (certain printer lines being an exception).
Compaq, OTOH, has never been much of a technology developer, preferring to buy other companies that have already done the lions share of the R&D. Compaq has been able to take that tech and turn it into (generally) good products.
On the desktop end, it doesn't really matter that much, though hopefully the Proliant's stick around instead of the HP line for the higher end desktops. The low-end consumer stuff is screwed no matter which way they cut it.
As for the rest of it, there is a huge amount of overlap in the product lines. That's obviously bad for Alpha, which kinda sucks, but kinda doesn't. The overlap is also going to mean some killer layoffs at some point down the road. Hopefully the *nix pieces get combined in some manner, instead of just cutting one side of it. On second thought, maybe they can finally take the opportunity to put HP-UX out of it's (and our) misery. I'd like to see their Linux efforts continue for sure. I'm not at all familiar with Tru-64.
Who knows, it's possible that this will be good for the tech industry. It certainly could be, and I, for one, hope it will be.
Ooooohhh, sounds good! I know that StrongARM was reckoned to be the most Mips/Watt, is it still ahead when we get to the - kinda - near gig levels that we're talking about here?
:)
Maybe I'm going to have to learn ARM assembly after all
Dave
I write a blog now, you should be afraid.
In a stunning move, stunning because of the lack of a sense of history, HP simply repeats the same blunder it made when it purchased Apollo to temporarily become the "Number One Seller of Workstations". Only this is on a larger scale.
Absolutely. I used to work for HP back in 1989 when they made said aquisition. Within the hallowed halls, there was much rejoicing. Everyone was told, hey, now HP will make better workstations using Apollo technology! Didn't happen. Instead, all the Apollo techs left in disgust, and Apollos were killed dead. (I'm not entirely sure of the order in which that happened, though!) (-8
Prediction: Massive layoffs at Compaq, destruction of Compaq computers, little assimilation of technology, little merging of the workforce. They may actually delude themselves that they will make use of Compaq resources, but company mergers never work. One company always swallows the other, corporate politics and survival-of-the-fittest reign.
From what some people have been saying, HP's corporate culture is still better than Compaq's, so that's one hopeful thing -- if HP is the winner in the silent battle.
Unfortunately, when one's job is on the line, nobody is going to be objective in evaluating whether Project A or Project B is the better one -- even if Project B is obviously miles better than Project A, if some middle manager loses power if things go with Project B, they are going to push Project A for all its worth(less). Human nature.
Now imagine that happening multiplied by thousands, for the thousands of employees who are going to be laid off by this merger. Don't expect sensible decisions.
In case you're wondering how I left HP... our section was "downsized" because Head Office wanted to get out of Applications Software... But it was a nice place to work while I was there, and they tested things to death. Quality control, you betcha.
So, despite all my doom and gloom, I don't think HP will die. Just don't expect anything wonderful out of this merger.
-=- Say it with flowers. Send a Triffid. -=-
I spent a year there (my contract at HP expires in three days), and I've seen the environment.
I'm kind of optimistic about the deal from the companies' point of view. First of all, who is going to suffer:
1) Competing printer makers. For now Compaq was rebranding Lexmark printers, so they are screwed.
2) OpenVMS and HP3000 users. HP is trying to get rid of all old platforms (like HP3000). OpenVMS will probably be put on life support (it was doomed after Compaq could not produce Alphas anyway).
3) Digital UNIX users. I think HP will try to move them to much more widespread HP-UX (many of the vendor packages are released for Solaris and Linux first, HP-UX second, and AIX third. TRU64X and Irix are distant fourth, and many don't even port there). I'd guess that they might even release an emulator of the system calls to just recompile programs on HP-UX scaling down Alpha products.
4) Stratus Computers (www.stratus.com). This competitor of Tandem uses HP processors and OS now, and they are going to get a competition from HP.
5) Employees.
Do you know that these corporate behemoths do not build their stuff? I've recently seen an inside auction where the last HP inkjet made in the US by HP was auctioned. All of the printers and PCs are now built by subcontractors (such as OMNI, Solectron, et al). Consolidation of the products will allow to reduce the design, development and testing staff. Also reduced will be support (eventually, after consolidating the products).
OTOH, the deal will help HP get through the hard time of the market slowdown by sharply increasing their inkjet's market share (using Compaq's strength in retail). Expect Lexmark's shares to fall.
Second, it will give them the reliable computing in Tandem. I don't know if Tandem computers were shifted from MIPS to Alpha, but the next generation of them will definitely use McKinley processors because their customers value reliability over speed and cost, and any processor will suffice.
Third, integration will give them GOOD REASON to discontinue older product lines at both Compaq and HP. These are decisions that usually involve a lot of power struggle, but the merger puts a "force major" mode on.
Conclusion: HP is buying itself a market share and sales channel for its PCs, PC servers and printers plus economics of scales. Also it buys itself a chance to do a full scale reorganization.
Finally, HP did not fire CEO. The fucker's name is Rick Beluzzo (doesn't it sound familiar?), and CEO's name was Lew Platt who peacefully retired. Beluzzo was the one pushing M$ into all holes. Later he went to head SGI (hence THEIR NT boxen), and now works where he belongs - in BillG's brothel.
Tigers respect lions, elephants and hippos. Maggots respect no one. (C) S. Dovlatov
For those of you who were not around for it: HP bought Apollo in the early 90s. Apollo had what I stand firm in calling the coolest OS in history (totally network-aware, UNIX-like environment, odd-but-compelling GUI with X support, stable network filesystem, etc). They also marketed the world's first networked workstation (followed quickly by Sun).
When HP bought them, they 86'd all of Apollo's technology (except for the critical RISC tech they wanted in the first place) and as soon as they were allowed to by the terms of the "merger", fired most of the Apollo staff. They even had the gall to go to all of the Apollo customers (who were running an OS that you simply could not beat at the time) and tell them that their "upgrade path" was to transition over to HP/UX (one of the world's most brain-damaged versions of UNIX).
Please, don't assume that HP is going to do anything more sane in buying Compaq. The iPaq will probably suffer and/or be removed. I expect to see the final death-blow to the alpha. All of DEC's old technology will likely be scrapped. HP may have changed, and if they have, more power to them. But, I'll reserve judgement....
Some things to think about before making a comparison:
-Automobile manufacturing is hugely capital, labor and material intensive compared to computers, so it is a far from nimble company to make changes in. The auto product is expensive to manufacture - but the difference between low and high end is rather narrow ($15K to $60K) compared to computers ($500 to $1G). Both are highly reliant on engineering, but autos use it more for design concept and execution - the basic premise and technology (i.e. the internal combustion engine) is virtually unchanged. Compare that to computers, which seem to have major changes under the hood almost yearly, not to mention software.
-As for Chrysler, they were already screwed, to pursue your analogy. They have always been overly reliant on inventory, since they never had the manufacturing capacity of either Ford or GM (or Toyota or Honda for that matter). Thus downturns would be ruinous - a circumstance that nearly led them to bankruptcy. Additionally, they never established a global presence - their efforts to establish themselves in European or Asian markets have failed miserably. Chrysler tried to compensate for these shortcomings by hoarding cash, which only made them a takeover target for Kirk Kerkorian and other shareholders; and by designing new products that were flashy and interesting (e.g the PT cruiser - nice look, lousy car).
-As for who got who consider this - Daimler's egomaniacal CEO, Juergen Schrempp saw an opportunity to be king of the mountain - he saw a company that on the surface had some interesting products and was number three in the U.S. The Chrysler team knew that without a global presence and having spent the cash to fend off Kirkorian and company, the company would atrophy over time, and so when Mr. Schrempp strutted into the boardroom, they knew they had a big one on the hook. They got the best terms they could, grabbed their golden parachutes and jumped out of the plane. Twelve months later, as the company bled red ink over Highland Park, Schrempp and a top lieutenant have stepped in, since it's now his ass on the line.
True, the end result may be that Chrysler maybe Daimler's "bitch," but they have been well compensated for the privilege, and not without giving Daimler a nice dose of the clap!!!
Both Compaq and HP have lost ground in the enterprise service space to IBM and Dell (I believe Compaq saw a 26% drop this year in market share in the enterprise market; not sure about HP). So I'm not sure I'd say Compaq has the Intel server market nailed.
Additionally, the PDA market has been generally stagnant. PDAs were a lot like health club memberships for average people. They would buy them to "get organized", but it would generally be nothing but a glorified address book. I think that's why Palm (who has 70% of the market) has been successful in the past (it was a fad to get a PDA because it made you "hip"), but is also having a hard time this year (no one sees a reason to upgrade). Case in point, in my office-- mostly people 32-50 in a large telecom company-- there are plenty of 2 year old Palm V's, but I've only seen one new model (a entry level 105, I think).
So I still don't know what big advantages Compaq is going to bring to HP.
Insert simplistic political, ideological, or personal proselytization here.
Well, first of all, note that the government did take an intense interest in the AOL/TW merger, and did in fact force them to make some (limited) concessions for the sake of preserving competition.
And this is the key point: the feds don't (or shouldn't) get involved in mergers like this unless they threaten competition in certain markets. It would be very tough to come down hard on HP/Compaq in this regard because the only market where their merger could have virtually *any* negative impact on competition is the most competitive market on the planet: commodity PC hardware. Indeed, there was some chance that, absent a merger, both companies would have been out of consumer PCs The merger might actually help save a competitor. Seriously, I think the only PC firm that could really draw fire for a merger these days is Dell itself, and they quite frankly do not need to merge with anybody. Coming from the other direction, the only companies HP would have significant anti-trust issues with would be in printing and imaging, and I don't think we're likely to see much of that.
All that being said, I'm not sure that this merger will really end up achieving much. Combined PC sales for the two firms are not likely to be any higher than for the two separate companies, and while they could layoff some more people, I can't see them becoming Dell or anything. It could even hurt some. Barron's a couple of weeks ago pointed out that HP's printer business (especially ink and toner) was the company's cash cow, but one that could potentially bring in even more money if HP *didn't* compete in the PC market (they currently lose a lot of printer sales on bundling deals they don't get because they're a direct competitor in the commodity PC market). HPaq will not be getting out of PCs, so unless they keep or grow their market share, the printer bundling argument starts to become more potent.
Babar