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2002: HP Acquires Compaq and the PC Goliath Emerges

Some events that took place in the late nineties and the early-2000s continue to plague Hewlett-Packard even today. Still, HP is now the strongest IT company in the world, thanks to its acquisition of Compaq and a great expansion of its markets.

After an acquisition spree performed by Eckhard Pfeiffer, chief executive of Compaq in the nineties, which involved takeovers of Tandem Computer (NonStop servers) and Digital Equipment Corp. (designer of Alpha processors for servers), Compaq found itself in a difficult situation. On the one hand, it was in the midst of a price-war against all the other players on the PC market, on the one hand, it had precious mission critical server assets and three different corporate cultures within itself. Even after Pfeiffer was forced out from the company in 1999, the new chief exec Michael Capellas could not restore the company.

After some struggle, Compaq and Hewlett-Packard announced the world’s largest corporate IT merger in September 2001 with the plan for HP to acquire Compaq in an all stock purchase valued at $25 billion. Numerous large HP shareholders, including Walter Hewlett (the sun of Bill Hewlett), openly opposed the transaction, which resulted in an emotional public proxy battle between those for and against the deal. Finally, after an 8 month period ending in May 2002, the merger passed shareholder and regulatory approval with the end result being one company. After another public clash with Walter Hewlett, Carly Fiorina, chief executive of HP, ordered to rename the company into HP. Following this acquisition, HP became a major player in desktops, laptops, PDAs and servers on many different markets.

"People are declaring the PC business dead because it has had a couple of rough quarters. That's incredibly shortsighted. It's clear that this is a critical part of the ability for consumers to do interesting things in their homes. But the reason for buying isn't going to be to get the hottest box at the lowest price. You've got things like digital imaging, digital music. It's something that does something for a consumer. This is what the industry is missing. It's innovation. That's what Dell can't do," said Carly Fiorina at the time.

Although a lot of Compaq's product lines were discontinued by HP, the company still offers support for PDP-11, VAX and AlphaServer machines. Besides, acquisition of Compaq clearly showed the path for further expansion to HP and in the following years the company continued to takeover smaller firms. Some of the large acquisitions (EDS, 3Com) proved to be huge successes, some of the smaller ones (VoodooPC, Palm) were clear failures.

It is clear that HP is now the No. 1 maker of PCs and has ultimate corporate, financial, and buying power. Nonetheless, there are issues with synergies, major execution challenges as well as lack of various ingredients necessary to compete in the 21st century. The journey of HP into the new world only began with the purchase of Compaq and only a part of it has been completed so far.

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