This preview shows page 1. Sign up to view the full content.
Unformatted text preview: and it was important to the
negotiating process that they call us. But 12 months before that phone call, it was
clear it was going to happen and the issue was then what do we want our answer
to be 12 months from now? I almost predicted to the month when that phone call
would happen: it was clear, given Compaq’s strategic challenges.
Compaq had to make the call because you could look at [the strategy they
espoused] and compare it to what they had in terms of capabilities to pull it off.
They saw the market the same way we did, but you could look at how much strain
their business model was under, and you could see they didn’t have the scope and
scale to achieve their vision. Their business model was challenged in places
where ours was strong and our business model was challenged in places where
theirs was strong. But, they were under more strain than we were. So, it was
easy to predict they were going to make the first call.
A big reason Compaq had been troubled was its failure to do much with their acquisition of DEC
in 1998. Another reason was its reliance on the PC market, where it struggled against fellow
Texas rival, Dell Computer, and its low-cost, build-to-order model with direct distribution. At This document is authorized for use by Xiaolei Cong, from 11/30/2012 to 2/28/2013, in the course:
MGMT 237: 001 Management of Technology - Chaudhuri (Spring 2013), University of Pennsylvania.
Any unauthorized use or reproduction of this document is strictly prohibited. HP and Compaq Combined: In Search of Scale and Scope, SM-130 p. 6 the time of the merger announcement, HP’s operating margin on PCs was estimated at breakeven
at best. Compaq made an estimated 1.5 percent in PCs while Dell, with its relentless focus on
cost containment, managed to earn an estimated margin of 7 percent in PCs.10 In 2001, PCs
accounted for about 44 percent of Compaq’s revenue, while enterprise systems comprised 32
percent and services made up 24 percent.
Even before Fiorina and Capellas started discussing a merger,...
View Full Document
This document was uploaded on 02/16/2014 for the course MGMT 237 at UPenn.
- Spring '14