Worst tech mergers and acquisitions: HP and Compaq

A corporate merger, like a marriage, can yield a whole stronger than its parts -- or it can end in utter disaster. We countdown the worst corporate romances in IT history.

Corporate mergers - like marriages - can result in the whole being stronger than its parts -- or they can end in utter disaster. The IT industry has suffered its share of disastrous marriages. Here is the worst merger ever:

#1 - HP & Compaq

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Under the guidance of CEO Carly Fiorina, HP decided to merge with Compaq in a $25 billion dollar deal.

In the late 1980's, HP determined that their PA-RISC systems architecture for enterprise-class servers was going to hit a performance scaling threshold and began to investigate a new systems architecture, VLIW (Very Long Instruction Word).

In 1994, under the direction of CEO Lewis E. Platt, believing that it was no longer cost-effective for HP to have its own microprocessor foundry, the company ceased production and development of PA-RISC, shut down its own foundries and instead partnered with Intel to produce this new VLIW 64-bit enterprise chip, which came to be known as the IA-64.

Released by Intel and HP as the "Itanium" in 2001 after seven years of development and billions of dollars of R&D invested, the chip earned the early nickname of "Itanic" due to its low performance compared to less expensive, commodity x86 chips in most regular business applications. IA-64 also proved to be horribly slow when executing x86 instructions, which it had to do using software emulation.

Eventually, both AMD and Intel would produce 64-bit x86 systems, which when clustered in HPC configurations would easily outperform equivalent IA-64 systems for significantly less money.

IBM and Sun would continue to develop their POWER and SPARC architectures for their high-end servers, which eroded most of HP's high-end market share.

While other vendors such as Dell and IBM briefly introduced and sold Itanium-based systems, they shortly discontinued them. An executive at Dell publicly referred to the product as an "Albatross".

While the Itanium partnership with Intel surely started HP down the road to hell, it was accelerated in 2001 when HP, under the guidance of CEO Carly Fiorina decided to merge with Compaq in a $25 billion dollar deal.

Many large shareholders opposed the merger, including Walter Hewlett, the company's outspoken director and son of the company's co-founder, who engaged in a proxy battle in an attempt to prevent it. The prime objection was that Compaq had many overlapping product lines and would get the company involved in the low-margin PC business that its main competitor, IBM, was already in the process of exiting.

Compaq had only just acquired Digital Equipment Corporation (DEC) four years before, along with its powerful 64-bit Alpha RISC chip and Windows NT/Digital UNIX servers that had seen some moderate success in High-Performance Computing environments.

Seen by both executives at HP and Compaq as a redundant overlapping product under the new merged company and with Intel's IA-64 efforts underway, the Alpha -- arguably a much more mature, better supported and more desirable platform was phased out.

Under Carly Fiorina's reign, the merged "New" HP lost half of its market value and the company incurred heavy job losses. Fiorina stepped down in 2005.

Since the Compaq merger, HP has endured numerous problems with failed initiatives, dubious acquisitions (3COM, EDS, Palm, Autonomy) and has been plagued with ineffective management, including two major ethics scandals that have forced Chairwoman Patricia Dunn and two CEOs in succession, Mark Hurd and Leo Apotheker to resign.

Third-party OS development for Itanium other than HP's HP/UX UNIX derivative is now practically non-existent, as Microsoft no longer produces an IA-64 version of Windows Server. Itanium is considered to be a deprecated and legacy architecture by the Linux Kernel Project and is no longer actively supported by mainstream Linux distributions such as Red Hat, SuSE, Debian and Ubuntu.

On August 1, 2015, HP split into two companies -- HP Enterprise, which is keeping the servers, storage, services and software businesses, and HP Inc., which will sell PCs, printers and other consumer products.

HP Enterprise is now the only company to sell Itanium-based servers under their Integrity brand, after entering and exiting litigation with Oracle over the matter of supporting the chip with their flagship database software.

See also: More worst tech mergers and acquisitions

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