Hp and Compaq Merger

Webster University November 6, 2011 Hewlett- Packard Company, referred to as HP, is an Ameri sewer international reading engine room association. Its headquarters is establish in California USA. The attach to was founded in 1939 built in a Palo crushed-pitched garage by Bill Hewlett and David Packard and is instantaneously whiz of the worlds orotundst in establishment technology companies operating worldwide in almost of exclusively cartridge holdery country. It has 87,000 employees in cxx countries. HP specializes in developing, manu facturing computing, data storage, and ne 2rking hardw argon.In addition it designs softw be and delivers services. A volume of HPs produce business organisations take on storage devices as well(p) as computing devices, and a wide regorge of imaging point of intersections and last but not least, printers. Its harvests be astray avail qualified to ho social function harmonizes, pure(a) to medium sized individualised credit lin ees, as well as by online dissemination, occasion make out retailers, and major technology vendors. It excessively caters to enterprises and office put out retailers. The late 90s brought innovation but first home plate sales assumeth, as HP go about troubles in keeping up with the changing commercialize.It was at the point where Carly Fiorina was found as the in the al unneurotic chief operating officer. The focus then became on customer and internet sales. Carly revamped musical arrangemental structure. This led to a revenue growth however, mete out termss salve declined and HP faced recession in 2001, which led to pay cuts and layoffs. Stock prices continues to hang glide which led to the consideration of acquisitions. HP is committed to the development of reapings, information, and services that atomic number 18 widely accessible to every unmatchable including those with disabilities.The commitment it provides in supply to every cardinal supports its dive rsity and Total Customer knowledge objectives stop up that its technological benefits serve all. accord to Dave Packard, it is necessary that people work together in unison to fightd common objectives and repress functional at cross purposes at all levels if the ultimate in faculty and achievements is to be obtained. HP has a imagination of diversity as cosmos a master(prenominal) portion that drives success as well as private bringers from every ane within the company.Their emulous payoff stops them to hear and to adjust through the depth of their nurtures. It is alert for HP managers to come together regularly in post to discuss and respect the HP Way which ensures their top priorities through lower be, information technology arranging avails, amplification in business growth, an improvement in skill, and customer service improvements. HP is organized in the form of deuce aggroups. The introductory-class honours degree is the descent Customer Organiz ation, and the punt group is the Consumer Business Organization (Wagonfeld, Rubenstein, and Block, 2001). some(prenominal) groups ar supplied through the avocation overlap divisions Computing systems, imaging and printing systems, and embed personal systems. In addition HP services atomic number 18 available which work between the consumer, the crossway, and the groups. Major product lines embarrass personal computing machine (PC), desktop and fluent personal information processing systems, software put to work upants, copiers, scanners, networking solutions, and consulting services. In addition, the companys 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 indian lodge to begin the formation of their company and began their first-class honours degree product, a portable perso nal computer to run all the software beingness developed at the time for the IBM PC. four-spot long time into operation, the company was able to surface way to the Fortune 500 more than than rapidly than any another(prenominal) company in the same do primary(prenominal). Compaq products were developed and invest in three antithetical groups.The first group is the Enterprise Computing assort which designs and develops servers, internet products, and networking products. The second group is the commercial message 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(prenominal) 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 union.The unfermented HP leave alone constitute the second largest globa l technology provider with rough $87 cardinal in revenue as well as many opportunities to create competitive advantages with their animate resources. It then had the ability to provide a multiple play of solutions and will be in position of competitive advantage in comparison to the leader IBM. prior(prenominal) to Compaqs uniting with HP, its heart token was CPQ, however after the union its ticker symbol is now HPQ. . The managements reasons for the fusion included the following amend economics and innovation, complementary eadership in signalize markets, strengthened business provides critical volume in key growth market, and financial benefits. First of all, combining HP and Compaq would sequel in creating economies of scale, send off sales channel, and a more flexible diffusion channel. min of all, the optical fusion would facilitate the diligence lead-in product line in the blame slight server category, and s core a broader portfolio of products and servi ces. troikaly, having around 65,000 IT architects in 160 countries accelerates growth and leads to crack customer loyalty.Finally, financially, it estimated $2. 5 billion in annual constitute savings by mid 2004 and the union would in any case allow HP to cast up investment in the imaging and printing business. Reasons against the conjugation were the following HPs business portfolio would be worse collect to an accessiond ikon in unprofitable PC business, and the PC market was expected to shrink. Second of all, the consolidation risk of the pro represent nuclear fusion reaction is warm as no uniting involving computer companies had ever met expectations, and analysts estimated a revenue loss that could be as in last spirits as 15-17%.Third of all, it would wee-wee a electronegative bushel on HP spudholders as a dramatic drop in stock price was announced after the suggestion of the uniting and Wall Street predicted low estimates for future financial performance. A twenty-five percent reason against the merger is that HPs strategic position will not materially improve as incomplete company had a profitable business forge nor successfully transitioned into a direct distribution representative. Furthermore, a merger would not materially improve HPs market position in full(prenominal) profit areas. Despite the debate for or against the merger, at that place was a 51. % approval allowance and supporters believed it was the take up option available for some(prenominal) tautens. SWOT summary The strengths of the merger are Compaq-Server category and overall storage, HP gamy-end storage, and severe brand recognition. HP and Compaq were to save $2. 5 billion in operating cost by 2004. After their merger, at that place was an increase in cash flow. The weaknesses they faced are the development of a direct distribution clay sculpture, consulting and outsourcing (low market share), and Compaq printers (low market share). Consumers were unsure rough the reliability of impertinently products, and HPs market share was to increase to 18. % only. The opportunities they were faced with are the improvement the merger could have of economics and innovation namely economies of scale. It also strengthened market leadership in storage, and market growth in IT services. Finally, the brats posed were the increases of pressure by dell in the lower-end server market, and the entrants of IBM and Dell into the market that get ahead eroded more market share. Michael E. porter draws upon industrial R development economics in pitch to derive the five force backs that consider the competition and the overall profitability of a market.For example, an unattractive attention would be one that combines the five forces that drives down overall profitability. The first force in Porters specimen is the threat of the entry of new enemys. Profitable markets that yield lavishly returns and will therefore attract new firms. The resu lt of this is many new entrants which eventually ebb profitability for all firms in the industry. The merger that occurred between Compaq and HP raises a take hold level of threat for new entrants collect to economies of scale that are achieved by the already existing shams, and this is what results in their competitive advantage.In addition, there is indispensableness for exalted corking requirement for any new player that wants to enter the market. Another factor is product polariation which results in a eternal need for the improvement in technology in order to grab consumers attention. A third factor is deem consumer discombobulate cost. An example of this is the ease for customers to limiting their laptops due to the keep goingardization of most computer components. In addition, the access to distribution channels makes it uncomplicated for consumers to approach the desired products, due to the availableness of direct customer service and some(prenominal)(preno minal) internet and computer retailers.The second force in Porters model is the bargaining power of buyers. Moderate consumer chemise costs makes it easier for consumers to be able to diverge their laptops, due to standardization of most computer components. A low form of suppliers are providing HP and Compaq products to consumers. In addition, suppliers operate with high fixed costs, which is the main reason there are a low number of suppliers. The third force in the model is the bargaining power of suppliers, which consists of a high number of customers that are fragmented and providing products to them is not an easy task, which is wherefore suppliers bargain highly. in that location are however, a few large suppliers which are trustworthy, reliable, and recognized. They provide good fictional character raw material such as Intel and Hitachi. A fourth force in Porters model is the threat of substitutes. Switching costs for consumers is high because of low price HP Compaq la ptops that indicate its signal towards the nerve center class and upper middle class atom. These people find it harder to switch from one product to another which is why they are more correspondingly to extend loyal. In addition, frequent product presentations and invariant improvements in price serve as a cause for moderate threat.A final force in the model is rivalry. High fixed costs in the cost for setup of manufacturing units increases fixed cost, which makes it more difficult for the existing players to go the market. Also, constant quantity changes in products and price makes competition stiffer. It is eventful to note that the two big players that hold the top two market share spots in the computer computer hardware industry are IBM and Dell. IBM has strong look and development and marketing and gave rise to PC industry with Microsoft Windows OS. IBM global services also have strong customer assistance.The latter(prenominal) is a direct business model with low inven tory costs, and Dells c pretermit relationships with its consumers helped build loyalty, and it ranked number one in the global PC market in 2001. In July 1999, Carly Fiorina was appointed as the CEO of HP, and the board believed she was the recoverer of HP. Her goal was to reinvent the company match to the HP way. Her motto was Preserve the best and reinvent the rest. At the time Carly took over, it was a collection of independent businesses, each merchandising a different kind of product.Her eccentric was to execute an e-services strategy that would unify them into one profitable square. After merging with Compaq, the main strategies that are focused on are the following Sustainability where the new HP essential two retain and grab additional market share, Uniqueness by being the largest IT company world-wide, value added by which the merger must demonstrate success, an increased product line through enhancement, adaptation to market forces through flexibility, and the ret ention of customer base through stability. Fiorina promised balanced revenue and net profit growth, targeting 12%-15% growth in 2000.The conundrum was that Carly Fiorina held too many offices as she was CEO, COO, and chairwoman of the board. This led to an abuse of power, poor decision-making, and miscommunication. some(prenominal) Compaq and HP were in an unwinnable price war with Dell. The merger of HP and Compaq clearly benefited two companies. From Porters five forces model of HP-Compaq, it is evident that there are moderate entry barriers, moderate threat of substitutes, high competition, moderate bargaining of power of buyers, and high bargaining power of suppliers.HP focuses on making technology more mere(a) for its users from individual customers to large businesses. Its top priorities are to lower costs, improve its technology systems, increase business growth, and improve two efficiency and customer service. Despite the fact that both HP and Compaq were mature compan ies before the merger, the merger is still considered to be under restructuring, which resulted in the company losing some of its ground as a mature company. Blending the assimilation of both companies resulted in more sophisticated ideas and is now more supportive in providing more effective customer service. through the successful merger of HP and Compaq, their costs were reduced by $3 billion annually. From the information provided above, it is measurable to note that the introduction of improved and more innovative products should be of focus as competition in existing players is high in order to gain market share and competitive position in the market. The company is center on its strategies in order to ensure achieving all business priorities by adjusting and optimizing the product line and enhancing high end services.When analyzing a merger between two companies give care Compaq and HP, it is worth noting that if we were to do a segment analysis of this merger, a differen t closing curtain would be drawn than an increase of benefit in the merged firms. In a segment analysis, the combined firms would adversely lose money while trying to gain advantage over its product line in the business sector for example. A large business segment would only see a small increase in profits in this case. Depending on the springyity in the market and the pertinent position of the firms involved, the effects of a merger would vary significantly across different segments.For example, if Dell and Compaq were to have merged in 1998, it would have resulted in a negative consumer surplus. This in turn allows us to prehend that the use of segment analysis can be valuable in assessing what impacts a merger could result in in various markets that have different consumer segments. The evolution of the market also plays an important factor. In the case of the HP-Compaq merger, if the same merge had occurred at a different period alike(p) 4 years earlier there would have be en a small consumer upbeat as opposed to the results yielded in its 2001 merger.bread maker and Breshnan (1985) proposed a strategy of contend and supply to evaluate the effects of mergers. Products and consumers are find by market participants consort to baker et. al, which in turn will be correlated with equilibrium prices which will lead the price coefficient to be biased towards aught. Furthermore, providing the consumers with a chance to not leveraging any of the products available in regards to personal computers plays an important role as it allows the supply price increase to change the quantities purchased.In addition, by using the demand parameters that are estimated, price-cost margins and bare(a) costs can be mensurable without the use of actual cost information. According to Nevo (2000), in the HP-Compaq merger, marginal costs and the number of products are held constant in their pre-merger level. Furthermore, post-merger equilibrium conciliatoryities are cal culated based on the demand parameters in the pre-merger phase. From this, we can make the assumption that both consumer preferences and the value of the good did not change after the firms merged.However, one cannot ignore the fact that changes in the strategy after the merger took place postinged for price sensitivity and curiously changes outside the industry that could impact demand for the product places doubt on whether such an assumption is valid. A way one can look at the estimates of different segments is by looking at the aggregated demand elasticities over time. This is pictureed in a report by Foncel and Invaldi (2000). It is important to note that the add elasticity for the whole market is increasing over time.This is turn means that consumers are being less sensitive as the market is glide path its maturity, this would lead to the expectation that the demand for personal computers would be more elastic. Income effect plays a big role here as soaring prices means that purchasing a PC would become a smaller share of the budget over time. In addition, further developments in software widened the use of computers and have now become a necessity in our daily lives. The total elasticity of the home segment is the one that faces the largest rise.The reason for this is that this segment became less elastic over time due to two reasons. The first reason was due to high income elasticity and the second was due to high usage of some(prenominal) developments in other domains such as the internet. Qualitative analysis of coordinated effects in the HP-Compaq merger is essential in take careing the formation of the merger that took place between both companies. In order to coordinate firms that are looking into merging should be able to come to an agreement which is not everlastingly easy as products in both firms are complex and differentiated.Compaq and HP should monitor lizard one anothers demeanour closely to detect factors such as undercutting, and keeping rivals out by jointly coordinating behaviour between them, Stigler (1964). The distribution of brands and market shares varies both in time and across markets. Most firms are multi product firms which is why it is essential to bear in mind that there is a substantial number of products. Another important factor here is that firms may face elastic demands which arise from the consumers substitution of products in character reference segments.In addition, market transparency ensures that all coordinating oligopolists are aware of the changes in the evolving markets. In the HP-Compaq merger, there are several(prenominal) market features that pave way for coordination in the server industry and others that prevent it from occurring. Also, contenders like Dell and IBM did not try to stand in the way of the merger. According to Freidman (1971), the merger between HP and Compaq affects the incentive to cooperate, hitherto it actively decreases the firms incentives to coope rate in a strategic manner.Freidman also goes on to portray that his model does not take into account either the entry or exit of a product, nor uncertainty. The reduction of costs, and enrichment of revenues, growth of the industry, and need of product diversification are several reasons why mergers and acquisitions have become proliferate over the last decade or so. When analyzing the financial results of the HP-Compaq merger, it is important to look at the profitability and efficiency ratios of the companies in the pre-merger and post-merger stages.In order to maximize profit and decrease products, HP and Compaq understand and adjust to the incessantly shifting and changing markets, which technologies need acceleration, value creation for its consumers, and global development which serves as a shield against competitors like Dell and IBM. It is essential for a firm to understand its position in the industry curiously in a market that is virtuous with competition like the comp uter industry where competitors such as Dell, IBM, Toshiba, Sony, Vaio, are present.An organization must be able to rank the factors that have an effect on the firm such as its suppliers, consumers, and competitors. Those factors enable the industry to know how to maintain itself in such a marketplace in order to be in a win-win situation. ace of the benefits that resulted from the HP-Compaq merger is the following. Both firms were in a no win situation price war with Dell. The merger resulted in Compaq and HP to stop competing with one another. In February 2001, Dell, the biggest competitor of HP-Compaq launched a campaign to become the largest competitor in the PC industry.In an take in charge to grab the market share, Dell announced and intentional undercut in its prices by 10%. Although some mergers produce marginal results or lead to the sinking of companies, HP and Compaqs merger created a new corporate culture. This helped the company focus its product development efforts. The company improved its position in a number of core markets. By completing the merger when they did, HP was able to position itself by fetching the extra leap ahead of trends that were working against the two companies when they existed as independent entities.In addition, its commitment to cultural change helped the merger go through a glassy transition, although HP took certain measures like step-down its workforce size, the change of 2 CEOs, and the reorganization of the managements structure. The HP-Compaq merger established what it had set out to. Its main aim was to provide the essential big bucks and ensure a long term-role in an industry that was undergoing a fundamental transition, according to Jean S. Bozman, research vice chair in IDCs world-wide Server Group.Furthermore, he added that this deal enabled the merged company to grow revenue and profits in an increasingly competitive marketplace. References Anon (2002) Investor relations- taking a fair share of the r esponsibility, Strategic Direction. Bradford Vol. 18, Iss. 8, pgs. 13-16. Ahles, Andrea (2002) Hewlett-Packard Executives imagine Its Company Is on Track to break Lasting Benefits, Knight Ridder Tribune Business News. chapiter Aug 28, pg. 1. Anon (2010) HP Hires Gail Galuppo to Lead Wordlwide strategy and Marketing for Imaging and Printing Group, Business Wire. New York.Brown, Meredith, Kubek, Gary (2002) Court Demands Proof of HP-Compaq voting buying International Financial righteousness Review, London Vol 21, Iss. 7 pg 25. Roy, Preeta Roy, Probir (2004) The Hewlett Packard- Compaq Computers Merger perceptiveness from the Resource-Based View and the Dynamic Capabilities Perspective, Journal of American Academy of Business, Cambridge. Hollywood Vol. 5, Iss. Pgs 7,8. Freidman J. (1971), A Non-cooperative rest for Supergames. Review of Economic Studies, 38, 1-12. Stigler, G. J. (1964) A conjecture of Oligopoly, Journal of Political Economy, 72, 44-61.Baker, J. P. and T. F. Br esnahan (1985). The Gains from Merger or Collusion in Product-Dierentiated Industries, Journal of Industrial Economics, 33, 427-444. Nevo, A. (2000a). Mergers with Dierentiated Products The Case of the Ready-to- eat Cereal effort, RAND Journal of Economics, 31, 3, 395-421. Foncel, J. and M. Invaldi (2001). Operating System Prices in the Home PC Market, mimeo, University of Toulouse. Bozman, J. S. (2006). HP-Compaq merger a success five years on IDC. URL http//www. itwire. com/it-industry-news/strategy/6879-hp-compaq-merger-a-success-five-years-on-idc