Hp and Compaq Merger

Topic Paper - Week 4

CERTIFICATE OF AUTHORSHIP: I certify that I am the author. I have cited all sources from which I used data, ideas, or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.

____Mirna Reda__________________10/11/2011

Signature Date

Hewlett- Packard Company, referred to as HP, is an American multinational information technology company. Its headquarters is based in California USA. The company was founded in 1939 built in a Palo Alto garage by Bill Hewlett and David Packard and is now one of the world's largest information technology companies operating worldwide in almost every country. It has 87,000 employees in 120 countries. HP specializes in developing, manufacturing computing, data storage, and networking hardware. In addition it designs software and delivers services. A majority of HP's product lines include storage devices as well as computing devices, and a wide range of imaging products and last but not least, printers. Its products are widely available to households, small to medium sized businesses, as well as through online distribution, office supply retailers, and major technology vendors. It also caters to enterprises and office supply retailers.

The late 90's brought innovation but low sales growth, as HP faced troubles in keeping up with the changing market. It was at the point where Carly Fiorina was appointed as the new CEO. The focus then became on customer and internet sales. Carly revamped organizational structure. This led to a revenue growth however, share prices still declined and HP faced recession in 2001, which led to pay cuts and layoffs. Stock prices continues to soar which led to the consideration of acquisitions.

HP is committed to the development of products, information, and services that are widely accessible to everyone including those with disabilities. The commitment it provides in catering to everyone supports its diversity and "Total Customer Experience" objectives ensure that its technological benefits serve all. According to Dave Packard, "it is necessary that people work together in unison toward common objectives and avoid working at cross purposes at all levels if the ultimate in efficiency and achievements is to be obtained." HP has a vision of diversity as being a main factor that drives success as well as personal leadership from everyone within the company. Their competitive advantage allows them to learn and to adjust through the depth of their values. It is vital for HP managers to come together regularly in order to discuss and assess the "HP Way" which ensures their top priorities through lower costs, information technology system improvements, increase in business growth, an improvement in efficiency, and customer service improvements.

HP is organized in the form of two groups. The first is the Business Customer Organization, and the second group is the Consumer Business Organization (Wagonfeld, Rubenstein, and Block, 2001). Both groups are supplied through the following product divisions: Computing systems, imaging and printing systems, and embedded personal systems. In addition HP services are available which works between the consumer, the product, and the groups. Major product lines include personal computer (PC), desktop and mobile personal computers, software solutions, copiers, scanners, networking solutions, and consulting services. In addition, the company's support group offers consulting, education, and solution financing to its users.

Compaq was founded in 1982 by Rod Canion, Jim Harris, and Bill Murto and its headquarters is based in Houston, Texas. The three founders invested $1,000 each in order to begin the formation of their company and began their first product, a portable personal computer to run all the software being developed at the time for the IBM PC. Four years into operation, the company was able to pave way to the Fortune 500 more rapidly than any other company in the same domain. Compaq products were developed and placed in three different groups. The first group is the Enterprise Computing Group which designs and develops servers, internet products, and networking products. The second group is the Commercial PC Group which designs and develops commercial desktops, and small and medium business solutions. The final group is the Consumer PC Group which designs and develops consumer products such as desktops, printers, and portables. Compaq markets its products mainly to consumers from the following sectors: Business, home, government and education.

In 2001, Compaq and HP engaged in a merger. The new HP will become the second largest global technology provider with around $87 billion in revenue as well as many opportunities to create competitive advantages with their existing resources. It then had the ability to provide a multiple number of solutions and will be in position of competitive advantage in comparison to the leader IBM. Prior to Compaq's merger with HP, its ticker symbol was CPQ, however after the merger its ticker symbol is now HPQ. . The management's reasons for the merger included the following: Improved economics and innovation, complementary leadership in key markets, strengthened business provides critical mass in key growth market, and financial benefits. First of all, combining HP and Compaq would result in creating economies of scale, direct sales channel, and a more flexible distribution channel. Second of all, the merger would facilitate the industry leading product line in the entire server category, and gain a broader portfolio of products and services. Thirdly, having around 65,000 IT architects in 160 countries accelerates growth and leads to better customer loyalty.

Finally, financially, it estimated $2.5 billion in annual cost savings by mid 2004 and the merger would also allow HP to increase investment in the imaging and printing business. Reasons against the merger were the following: HP's business portfolio would be worse due to an increased exposure in unprofitable PC business, and the PC market was expected to shrink. Second of all, the integration risk of the proposed merger is substantial as no merger involving computer companies had ever met expectations, and analysts estimated a revenue loss that could be as high as 15-17%. Third of all, it would have a negative impact on HP stockholders as a dramatic drop in stock price was announced after the proposal of the merger and Wall Street predicted low estimates for future financial performance. A fourth reason against the merger is that HP's strategic position will not materially

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