HP_and_Compaq_Combined__In_Search_of_Scale_and_Scope

I almost predicted to the month when that phone call

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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,...
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This document was uploaded on 02/16/2014 for the course MGMT 237 at UPenn.

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