To achieve this growth compaq budgeted 500 million

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Unformatted text preview: Compaq had been trying to increase its presence in the services market. Over 55 percent of Compaq’s 68,000 employees worked in its services division. The company aimed to derive 30 percent of its total revenue from services. To achieve this growth, Compaq budgeted $500 million for acquisitions of small and mid-sized service companies. Some analysts were concerned about the nature of Compaq’s current services business. One estimated that between 25 and 30 percent of Compaq’s services business was derived from supporting older and declining Tandem and Alpha products.11 The highest fees and margins were earned in the consulting and outsourcing segments of the service industry. However, much of HP and Compaq services had been focused on providing product support, which was a lowermargin business. (See Exhibit 1 for current selected HP financial information, and selected financial and market data for HP and Compaq prior to the time of the merger.) From the Compaq Side The call must have gone well, because soon Fiorina and Capellas were meeting face-to-face to discuss a merger. Initially, the group discussing the merger was limited to four executives: Fiorina, Capellas, HP’s Duane Zitzner, who at the time headed the company’s PC business, and Shane Robison, then Compaq’s senior vice president and chief technology officer of Strategy and Technology. Robison discussed the reasons Compaq had been willing to surrender its independence: “Market share and scale matters; and size matters; it’s basically a portfolio play. As we looked at the two companies, we found that while we appeared to be competing, our strengths and our weaknesses were perfectly complementary. So it made a really nice merger strategy.”12 A merger with HP was not the only option Compaq considered. Robison led Compaq’s review of other strategic possibilities, but his analysis, like Fiorina’s, pointed to a HP-Compaq merger. Robison recalled: “We considered pretty much everything. I had a proc...
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