HP and Compaq: A train wreck in slow motion?

Hewlett-Packard and Compaq today announced a multi-billion dollar stock-swap deal that'll meld the two companies into one. A good move? I think not. Here's why.

When you think of mergers in the technology industry, what do you usually think of? Rousing successes...or a good way to waste boatloads of shareholder money? Orderly transitions...or the hosing of customers who happened to end up on the wrong side of the deal?

WHEN I think of technology industry mergers, my mind wanders back to Novell's purchase of WordPerfect, IBM's purchase of Lotus, Compaq's purchase of Digital, Compaq's purchase of Tandem, AT&T's purchase of NCR, AT&T's purchase of TCI, 3Com's purchase of Palm, 3Com's purchase of US Robotics, Borland's purchase of Ashton-Tate, and other train wrecks.

If there has been a really successful merger in the tech industry, I can't think of it. Maybe Next's reverse-acquisition of Apple is a success, but it's hard to really decide. AOL and Time Warner is more a media deal than a tech play, and the jury is still out, anyway.

Typically, however, mergers only make things worse. Which makes you wonder what the collective boards of Compaq and HP must have been thinking?

HERE'S THE PROBLEM: By the time a company is willing to merge, it's usually too late. Nevertheless, the remains aren't sold for a bargain, so companies spend a lot of money and have little to show for it. The loss of management attention and momentum during and after the deal can be staggering all by itself.

If, perhaps, a company is willing to merge while still strong enough to contribute something important, then warfare breaks out over how the combined business will be chopped up between the two former competitors. The acquirers are, not surprisingly, usually the winners here, despite the important-sounding positions given to members of the acquired management team.

In the case of Compaq and HP, you have two companies doing very much the same thing. How much overlap will be allowed will be interesting to watch. Which product lines will die? Which products will be essentially the same but with different logos? Will HP and Compaq continue to duke it out in the consumer market? Will Compaq's server products be sucked into HP, never to be seen again? Is it iPAQ or Jornada? Whose R&D will reign supreme?

And, most importantly, how will they manage to screw this up and how long will it take?

Here's what I think is going on here:

  • Both companies' finances and futures are in worse shape than we'd imagined
  • HP needs a consumer presence it lacks, but that Compaq has
  • Compaq has failed--this is where HP and Tandem come in--to significantly change the nature of its corporate business
  • It would be less expensive--I can almost hear the CFOs trying to convince themselves of this--to put both companies' consumer products into Compaq and all the server and corporate business into HP. Doubtless, they will try to fuzz this so it appears your favorite brand/product has a future, but get back to me in 24 months and let's see what's happened.


Now, don't think I have anything against either company. Compaq and HP are two of the companies I respect the most, and I hope this will work out for them. Still, I've hoped that for many deals over many years, so this time I will prepare myself for failure and hope to be pleasantly surprised.

I wish Compaq and HP all the luck in the world. They'll need it.

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