Five Years After: A Results-Oriented Analysis of the HP-Compaq Merger from IDC

FRAMINGHAM, MA – NOVEMBER 2, 2006 – In early September 2001, Hewlett-Packard (HP)and Compaq announced plans to merge. At the time, IDC predicted the two companies would be better off together in a logical response to the forces of hardware commoditization and industry consolidation that were already underway. In the five years since the announcement, the two companies have successfully completed a massive integration effort and moved the combined company forward to new revenue and profit levels.

A new study from IDC looks at how HP and Compaq met the challenges of integration and the progress the company has made since the merger was formalized in May 2002. As with any merger, the two companies faced the significant hurdles of blending product lines and creating a new corporate culture. Ironically, it was that latter that helped the company to focus its product development efforts and avoid further investment in products without a clear roadmap forward.

"What makes the merger interesting from a technology perspective is the extent to which HP has actually improved its position in a number of core markets that were rapidly commoditizing," noted Crawford Del Prete, senior vice president of Communications, Hardware, Services and Software Research at IDC. "The merger came at a time when both companies were becoming irrelevant in a number of key product categories. By completing the deal when it did, HP managed to position itself for the next wave of enterprise computing by leaping ahead of the trends that were working against the two companies as independent entities."

An important linchpin to the merger's success was the commitment to infrastructure software, which helped move the company away from commodity hardware and into the management layer. OpenView gave HP a foundation from which to build in the software business, putting the company in a stronger position to compete with the largest system and services providers worldwide.

Equally important was the company's commitment to cultural change, where it was hoped that the infusion of Compaq's fast-paced corporate culture would help increase HP's "business velocity." The initial integration efforts greatly benefited from Compaq's "adopt-and-go" approach, although some product and management decisions came at a high cost. Organizational changes have remained a critical issue, however, as HP had reduced the size of its workforce, experienced the departure of two CEOs, and reorganized its management structure.

Over the past five years, HP has successfully transformed itself into a company capable of delivering both volume products and value products, which gives it entry to more markets than many of its competitors. However, HP's transformation is not yet complete and challenges lie ahead. Among these are the ongoing need to reduce the complexity of its solutions, to expand its software business, to clarify its strategy in the services business, and to leverage underutilized assets in the consumer market.

"The merger accomplished what HP and Compaq set out to do in the first place – it provided the critical mass and reach needed to ensure a long-term role in an industry that is undergoing a fundamental transition," said Jean S. Bozman, research vice president in IDC's Worldwide Server group and co-author of the report. "This deal enabled the merged company to grow revenue and profits in an increasingly competitive marketplace."

The IDC study, Five Years After the HP-Compaq Merger: How Has HP Fared? (Doc #204068), revisits the 2001 merger between HP and Compaq, reflecting on the progress the company has made, as well as the future opportunities and challenges of the combined entity. The related references section lists a number of IDC research documents that provide additional detail about the merger itself, and the technology markets in which HP participates.

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