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."
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