The US$19.5 billion marriage of Hewlett-Packard Co and Compaq Computer Corp appears to have survived a corporate civil war. Now it has to overcome the simple fact that, more often than not, high-tech mega-mergers fail.
Despite their architects' high hopes and detailed plans, such mergers often create confusion over dueling cultures and product lines, leading to defections by employees and customers.
PHOTO: AP
"Hardware mergers have just been disaster after disaster," said James Schrager, a professor at the University of Chicago's Graduate School of Business. "You can go way back and walk through the rubble."
There was AT&T Corp's union with NCR Corp in 1991. It lost billions before NCR was spun off in 1996. Or Silicon Graphics Inc's acquisition of Cray Research the same year. SGI is still trying to regain its lost glory.
Then there was the merger of Sperry Corp and Burroughs Corp in 1986 to form Unisys Corp, which was to have challenged IBM in the mainframe market. IBM never lost its lead.
And nobody at Compaq will forget its acquisition of Digital Equipment Corp in 1998. Promised benefits simply never appeared.
HP and Compaq will have to resolve culture clashes, mesh product lines and soothe customers amid the not-so-cheery atmosphere of the planned 15,000 layoffs at the combined company.
After shareholder approval is certified, the new HP will have to prove it's greater than the sum of its parts, and that two behemoths can innovate just as nimbly as smaller competitors and startups. Innovation is a function of employee energy and leadership.
"Buying another weak player usually hurts innovation," Schrager said. "A great deal of the top-level corporate resources are all oriented toward making the merger happen instead of keeping innovation flying."
Mergers are rarely easy in any industry. High-tech companies, however, must launch new products quickly and rely more on employees -- assets who can easily walk out the door.
"When you buy brains, the asset is highly volatile. It's got to be nurtured, cared for, suckled," said Paul Hammer, a senior vice president at Houlihan Lokey Howard and Zukin Investment Banking. "If not, it's not going to produce what you want."
Some high-tech mergers do work, but generally only when a big company swallows a smaller firm. Router maker Cisco Systems Inc and software giant Microsoft Corp have successfully acquired important technologies this way.
HP chief executive Carly Fiorina and Compaq's Michael Capellas say their companies are better prepared for the union than any in history. They have been planning integration issues since last summer, and more than 900 employees are working full time on meshing the companies and studying past merger mistakes.
"We are prepared to hit the ground running," Fiorina said. "We have already made the tough decisions."
Of course, no chief executive planning a merger has ever predicted disaster.
In 1998, for instance, Compaq acquired Digital for US$8.55 billion. The goal was to push Compaq into the league of giant IBM.
Compaq's and Digital's cultures clashed. Plans to create a consulting business never took off. Product decisions were not made quickly or changed. Confused customers took their business elsewhere.
"It literally took years for them to sort out the true integration of the two businesses," said David Yoffie, a business professor at Harvard University. "Most of Digital's business has been destroyed."
Walter Hewlett, the son of HP co-founder William Hewlett, often cited grim statistics during his opposition to the Compaq deal: Compaq's value has plummeted 52 percent since Jan. 26, 1998, and earnings dropped from US$1.27 per share in 1997 to an estimated US$0.27 this year.
HP also had problems with its 1989 acquisition of Apollo Computer Inc. Though it at first made gains in the workstation market, those leads quickly vanished amid infighting and confusion.
Some analysts say those failures could hold lessons for the new HP.
"They know 800 things of the 10,000 that can go wrong," said Paul McGuckin, an analyst with Gartner Inc. "There's a reasonable chance they won't make those same mistakes."
HP and Compaq believe that by taking the best of each other's businesses, they will generate better end-to-end technology packages and create a high-tech services behemoth to rival IBM.
HP expects earnings to be 13 percent better next year with Compaq than they would be without it. But repackaging existing products won't be enough -- HP and Compaq will have to develop new inventions customers want to buy.
HP's last world-changing invention, in the opinion of analysts, was thermal inkjet printing -- developed in 1979 and mass produced in 1984. Earlier, it had introduced pocket calculators and light-emitting diodes.
Now, printing and imaging -- particularly expensive ink refills -- create the bulk of the company's profits. "It's a statement of how weak the basic HP business has become," Schrager said.
That's not to say innovation has ceased. With Intel Corp, HP jointly developed the Itanium processor for high-end servers. HP Labs is widely considered a leader in ultra-tiny nanotechnology research.
But innovation in basic research is pointless for a company's bottom line unless it leads to marketable products.
Xerox Corp has faced the same problem for years, with its corporate lab inventing the graphical user interface, the laser printer and Ethernet, while other companies reaped the profits.
"If you don't make it into something commercial eventually, it's of very little use and actually an embarrassment after a while," Schrager said. "You've got to do something with it."
The government is aiming to recruit 1,096 foreign English teachers and teaching assistants this year, the Ministry of Education said yesterday. The foreign teachers would work closely with elementary and junior-high instructors to create and teach courses, ministry official Tsai Yi-ching (蔡宜靜) said. Together, they would create an immersive language environment, helping to motivate students while enhancing the skills of local teachers, she said. The ministry has since 2021 been recruiting foreign teachers through the Taiwan Foreign English Teacher Program, which offers placement, salary, housing and other benefits to eligible foreign teachers. Two centers serving northern and southern Taiwan assist in recruiting and training
WIDE NET: Health officials said they are considering all possibilities, such as bongkrekic acid, while the city mayor said they have not ruled out the possibility of a malicious act of poisoning Two people who dined at a restaurant in Taipei’s Far Eastern Department Store Xinyi A13 last week have died, while four are in intensive care, the Taipei Department of Health said yesterday. All of the outlets of Malaysian vegetarian restaurant franchise Polam Kopitiam have been ordered to close pending an investigation after 11 people became ill due to suspected food poisoning, city officials told a news conference in Taipei. The first fatality, a 39-year-old man who ate at the restaurant on Friday last week, died of kidney failure two days later at the city’s Mackay Memorial Hospital. A 66-year-old man who dined
‘CARRIER KILLERS’: The Tuo Chiang-class corvettes’ stealth capability means they have a radar cross-section as small as the size of a fishing boat, an analyst said President Tsai Ing-wen (蔡英文) yesterday presided over a ceremony at Yilan County’s Suao Harbor (蘇澳港), where the navy took delivery of two indigenous Tuo Chiang-class corvettes. The corvettes, An Chiang (安江) and Wan Chiang (萬江), along with the introduction of the coast guard’s third and fourth 4,000-tonne cutters earlier this month, are a testament to Taiwan’s shipbuilding capability and signify the nation’s resolve to defend democracy and freedom, Tsai said. The vessels are also the last two of six Tuo Chiang-class corvettes ordered from Lungteh Shipbuilding Co (龍德造船) by the navy, Tsai said. The first Tuo Chiang-class vessel delivered was Ta Chiang (塔江)
EYE ON STRAIT: The US spending bill ‘doubles security cooperation funding for Taiwan,’ while also seeking to counter the influence of China US President Joe Biden on Saturday signed into law a US$1.2 trillion spending package that includes US$300 million in foreign military financing to Taiwan, as well as funding for Taipei-Washington cooperative projects. The US Congress early on Saturday overwhelmingly passed the Further Consolidated Appropriations Act 2024 to avoid a partial shutdown and fund the government through September for a fiscal year that began six months ago. Under the package, the Defense Appropriations Act would provide a US$27 billion increase from the previous fiscal year to fund “critical national defense efforts, including countering the PRC [People’s Republic of China],” according to a summary