HP has announced a major purchase of EDS to make an impact in the field of services. Wait - didn't they run this play once before when they bought Compaq? Sure enough. Has HP learned from history or are they doomed again for the next few years?
HP made a lot of news the other day by announcing its purchase of EDS. This isn't the first time HP has gone on a buying spree to extend its business. Most of you probably remember HP's purchase of Compaq back in 2002. The question is whether HP has learned its lesson from history or whether it's doomed to repeat the same mistakes over again.
HP or IBM-wannabe?
The whole rationale for the purchase of EDS was so that HP could move more strongly into the IT Services sector, an area that IBM has built a lot of its business this century in. HP for a long long time has seemed to have an almost kind of IBM envy. Naturally every company wants to beat its competition, but with HP, there's a near obsession with becoming the largest computer company on the planet.
Which, matter of point, HP already is. HP revenues were $107 billion, beating IBM by over $6 billion. HP holds the lead in the blade market. It battles back and forth with Dell for the PC market, usually beating it. HP owns the printer market hands down. HP is and has been the new IBM for some time now.
It may be the case of just wanting to keep ahead and get further ahead, but by making the purchase, HP takes a big gamble of stumbling the way that it did with Compaq.
The conquest of Compaq
In September 2001, HP announced its deal to purchase Compaq, one of the largest PC makers at the time and the original successful PC-clone company. The strategy there was twofold. HP wanted to gain marketshare in the PC/server business, so what better way than to merge with one of your major competitors? At the same time, HP wanted to use Compaq's purchase of DEC in 1998 to give it some more advantages in the services field.
Unfortunately, the merger didn't wind up going as smoothly as HP had hoped. So badly in fact, that it was one of the key reasons why then-CEO Carly Fiorina was driven from power and the company was nearly lead to a breakup. You can see how badly it went from some of the headlines on News.com about HP since 2001:
- Services, servers to challenge HP - By becoming a single company, Hewlett-Packard and Compaq hope to take on IBM and others in services, servers, software and storage.
- HP-Compaq merger: Worth the wait? - Last Labor Day, Hewlett-Packard announced that it was buying rival Compaq Computer in a deal that Compaq CEO Michael Capellas said would "change the basis of competition in the industry." A year later, the jury is still out on whether he was right.
- Hewlett abandons merger challenge - Walter Hewlett says he will not further contest the outcome of a March 19 shareholder vote on Hewlett-Packard's merger with Compaq Computer.
- Fiorina fires back against charges - A day after responding to questions with a host of terse answers, Fiorina was more talkative, drawing analogies and making attorney Stephen Neal rephrase questions regarding the significance of reports in February and March that suggested HP would fail to hit its financial targets after merging with Compaq Computer.
- Dell gains in servers at HP's expense - Hewlett-Packard and Compaq Computer have said that their proposed merger will strengthen both outfits, but for now the two seem to be losing ground to Dell Computer in key markets.
- Trouble in HP's post-merger paradise - While still smiling in public, newlyweds Hewlett-Packard and Compaq Computer are having their first marital spats. Although the two companies spent thousands of hours and millions of dollars on coming up with a strategy to blend two competitors into one colossus, philosophical and cultural disputes have emerged.
- Merrill Lynch to HP: Time for a breakup - Longtime Wall Street analyst Steven Milunovich is urging Hewlett-Packard's top management to split the company into two separate businesses.
- Fiorina steps down at HP - HP's
merger with Compaq Computer, which was spearheaded by Fiorina, has also been criticized. Although the merged company has managed to wring out costs by combining operations, it has lost marketshare in certain areas, according to analysts.
When it was all said and done, everything turned out OK. HP now seems to be firing on all cylinders. And then they go and buy EDS. It will be interesting to see if HP has learned its lesson in acquiring and integrating companies or if HP is going to be in for a long painful few years trying to digest another major purchase.