Hp and Compaq Case Study

HP-Compaq Case

Case Questions

1. What would a SWOT analysis reveal?

Strengths
        The merged company should have the strengths from both the two companies.

• From HP

• Market leader in imaging and printing, and high-end servers
• Top supplier in UNIX market

• From Compaq

• Market leader in PC’s and storage systems
• Significant player in enterprise systems
• Market leader in fault-tolerant computing

• New Strength

• Sharing costs to be an industry cost leader

• Potential to become dominant leader in servers
• Positioning to exploit “storage area networks”

• Good Brand Recognition

Weaknesses

• HP

• Weak in computing and IT services
• No presence in fault-tolerant computing

• Compaq

• Low market shares in some products
• Lack of some high-end printer and products/services

After the merger, some of the weaknesses may disappeared, and some other weaknesses may affect the new company.

• New Weaknesses

• focusing on low margin, fierce competition PC industry and market
• Some product lines may not fit (e.g. HP had high-end printers)

Opportunities

• Increased Operating Margins through economies of scale
• Provide more products/services for customers

• supply the whole needs for customers
• Provide products from entry level to high-end

• Better Distribution Channels
• Larger Custom Base

Threats

• Cultures don’t match, the merger may not be successful as expected
• Revenue risk offsets cost of synergies
• Anti-merger sentiment sways market to view merger as negative

1. Was the merger strategy sound?

On the surface, the HP-Compaq merger strategy is strong.  While HP and Compaq are direct competitors, their strengths in various areas seemed to complement each other.  For instance, HP is weak in fault tolerant computing, and Compaq is an industry leader; HP is an industry leader in UNIX whereas Compaq is weak.  In addition, both companies are struggling in the personal computing market.  While Compaq is a market leader in the PC market space, it is having issues maintaining positive operating margins.  HP on the other hand is lagging the competition in the PC market space.  By combining forces, there might be some economies of scale that can be achieved. However, what HP and Compaq are not factoring in is that the PC market space is in the midst of a price war and the competition is fierce and the margins are low.  The PC market space is becoming more and more commoditized and there is a rough road ahead for a leader in the PC market space.  Conversely, customers in the computing market are asking for their vendors to provide more, as they don’t want to have to work with as many vendors for their needs.  In other words, customers want a one stop shop for their computing needs, and the HP-Compaq merger could allow the firm to provide that service.