Acer Weaknesses

Acer closes in on Dell’s No. 2 PC ranking By Bruce Einhorn, BusinessWeek Tuesday, January 20, 2009 11:33 AM Just a few years ago there was a clear pecking order in the PC industry, with Dell at the front and Acer way back in the queue. Dell and its U. S. rival Hewlett-Packard were the clear champions, selling far more desktops and laptops than anyone else. Meanwhile, little Acer, a Taiwanese company that had tried and failed in the 1990s to crack the U. S. market, was an also-ran, with worldwide market share in the single digits. As recently as 2003, Acer ranked just seventh in sales around the world.

Lately, though, the Taiwanese have been pushing their way ever closer to the front of the line. Market-share numbers published on Jan. 14 by research firm International Data show HP is still on top, with 19. 6 percent of all PC shipments, and Dell is No. 2. But Michael Dell has reason to worry. While Dell shipments fell 6. 3 percent in the fourth quarter, Acer’s jumped 25. 3 percent. That not only puts the Taiwanese company solidly in the No. 3 position worldwide, it puts Acer less than two percentage points away from Dell, with 11. 8 percent share to Dell’s 13. 7 percent. And Acer is likely to keep on closing the gap, say analysts. In the next two or three quarters, you will probably see Acer surpass Dell,” predicts Daniel Chang, an analyst in Taipei with Macquarie. Gateway Was an Opening What accounts for Acer’s rise? The company is benefiting from its US$710 million purchase of Gateway, announced in August 2007. At the time of the deal, Gateway was the third-biggest PC brand in the United States, and the purchase has helped Acer gain ground in a market that had long stymied the Taiwanese company. Shortly after that deal, Acer followed up with the acquisition of the Packard-Bell brand, popular in parts of Europe.

According to the latest IDC numbers, Acer now ranks third in the United States, with shipments of 2 million computers in the fourth quarter. That puts Acer ahead of Apple and behind only Dell and HP. Acer declined to make any executives available for comment. Even more important for Acer’s market-share rise has been its focus on the hottest new segment in the computer industry, so-called netbooks. These pint-size laptops are light, simple computers that typically cost no more than US$500 and are based on a design that Intel first developed for schoolchildren in emerging markets.

The first to realize that the netbook could become a crossover hit in wealthier countries was Acer’s Taiwanese rival Asustek Computer, which launched its Eee PC in late 2007. Acer quickly followed, and it soon grabbed the lead. Meanwhile, Dell, HP, and Lenovo hesitated before launching netbooks of their own. “They didn’t start producing the mini-notebooks until late in the game,” says Robert Murtagh, worldwide PC tracker research analyst with IDC in San Mateo, Calif. “That has given Acer a strategic advantage. ” Low-Price Trend

With recession-weary consumers hunting for bargains, Acer’s focus on inexpensive netbooks—and its longtime role as a lower-cost alternative to the likes of Dell and HP–have helped the company boost shipments. And while the competition in the mini-notebook business is bound to get tougher in 2009, Acer’s head start should give it an important edge. “We believe Acer will continue to be the winner in the low-price trend and the netbook market,” wrote Credit Suisse analysts Robert Cheng and Jill Su in a Jan. 13 report.

Moreover, one of Acer’s weaknesses, its relatively poor position among corporate customers in the United States, has meant the company has suffered less than Dell and Lenovo, both of which have relied more on sales to businesses. According to IDC, Lenovo shipments fell 4. 8 percent in the fourth quarter; the company on Jan. 8 announced plans to lay off 2,500 employees, 11 percent of its workforce. Tracy Tsai, an analyst in Taipei with market research firm Gartner, says Acer won’t need to make the sort of layoffs that others have. “Acer has real tight management on its costs,” she says, and it has just 6,000 workers. “The smaller size f Acer puts it in a better position. ” Still, Acer faces some headwinds. Credit Suisse estimates 2008 earnings rose 7 percent, to US$353 million, on sales of US$16. 5 billion. But this year profits are likely to fall 7. 5 percent, on a 6 percent drop in sales, the bank says. Macqaurie’s Chang expects a slowdown, too, and he warns that Acer’s focus on building market share distracts the company from a more important statistic: earnings. As competition heats up further in netbooks, he says, Acer will face pressure to cut prices even more, drawing would-be customers away from its laptops and hurting Acer’s bottom line. Everybody’s netbook looks very similar now,” says Chang, so companies selling them “can compete only on price. ” For its part, Dell argues against paying too much attention to market-share rankings. “When we reported our Q3 financial results, we said our focus in this challenging environment was–and continues to be–on positioning Dell for long-term profitable growth by improving our competitiveness and enhancing our leading product and services portfolio,” Dell spokesman David Frink says via email. “We’re in the midst of that now. “

Read more

HP Compaq Merger

Leading the charge for the Merger of Compaq to Hewlett Packard was the then Chief Executive Officer, Carly Fiorina. In a speech delivered September 26, 2001 – Fiorina stated, “In dark and serious times like this, we must affirm our commitment to building societies and institutions that aspire to this kind of greatness. More than ever, we must focus on the importance of leadership – bold acts of leadership and decidedly personal acts of leadership.

” (Fiorina, Speech of Carly Florina (CEO Hewlett Packard): Islam: “WHAT DOES OUR FUTURE DEMAND OF LEADERS TODAY? “, 2001) It was this bold leadership that led Carly Fiorina to the back of the unemployment line. Sometimes the best leadership is not the boldest. Henry Ford understood the importance of knowing one’s self, to include abilities and limitations. When Henry Ford was asked a question he did not know the answer to, he would simply state, “I do not know the answer, but I have 20 people on my staff that do.

” In taking homage in the fact that he was not the most intelligent person in the room, he catapulted himself to being the smartest. Carly Fiorina learned this lesson as she was relieved of her duties on February 9, 2005 just under 5 years from when the merger was first announced on September 4, 2001. Fiorina could have read and used the notes section of the merger announcement as her departure statement and reason for failure.

It states, “This news release and the attached fact sheet contain forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, statements of expected synergies, accretion, and timing of closing, industry ranking, and execution of integration plans and management and organizational structure are all forward-looking statements.

Risks, uncertainties and assumptions include the possibility that the market for the sale of certain products and services may not develop as expected; that development of these products and services may not proceed as planned; that the transaction does not close or that the companies may be required to modify aspects of the transaction to achieve regulatory approval; or that prior to the closing of the proposed merger, the businesses of the companies suffer due to uncertainty; that the parties are unable to transition customers, successfully execute their integration strategies, or achieve planned synergies.

” (Fiorina, HP Press Release: Compaq. com – Hewlett-Packard and Compaq Agree to Merge, Creating $87 Billion Global Technology Leader, 2001) Fiorina failed to gain an understanding of the various types of market structures and did not recognize that the evolution of market structure in the computer industry had reached perfect competition with price being the only differentiator. The text states, “By early 2000, many components of PCs had become “commodities” that were bought and sold in markets resembling those with perfect competition.

As a consequence, there were few dimensions other than price for PC makers to use in differentiating their products. This heightened price competition in the 2000s significantly reduced the profits of computer manufacturers, including key players such as Dell and Gateway. As of 2007, this strain on profits has begun to translate into exit and consolidation within the industry. Further changes in industry structure are almost certain over the next decade. ” (Baye, 2009, p. 257) Although the text only mentions Dell and Gateway, Compaq and HP were almost assuredly also victims of market structure fluctuation.

The press release stated that the merger was still subject to regulatory approval. Given the market structure fluctuation, as evidenced by the IT industry’s fall or “dot Bomb” of 2000, and the unknowing tragedy that ensued on September 11, 2001, the market timing could not have been worse. Faced with these tough realities, the regulators performed their Herfindahl-Hirshman Index (HHI) and decided that even though the HHI was above 1800, yet the economy was suffering, and the fact that one or more of these companies was in financial dire straits then they were granted the request for merger.

Although, numerous large HP shareholders, including William Hewlett, publicly opposed the deal, the two companies merged. The merger was approved only after the narrowest of margins, and allegations of vote buying (primarily involving an alleged last-second back-room deal with Deutsche Bank) haunted the newly formed company. It was subsequently disclosed that HP had retained Deutsche Bank’s investment banking division in January 2002 to assist in the merger. HP had agreed to pay Deutsche Bank $1 million guaranteed, and another $1 million contingent upon approval of the merger.

On August 19, 2003, the United States Securities and Exchange Commission charged Deutsche Bank with failing to disclose a material conflict of interest in its voting of client proxies for the merger and imposed a civil penalty of $750,000. Deutsche Bank consented without admitting or denying the findings. (Wikpedia, Compaq – Wikipedia, the free encyclopedia, 2001) The biggest industry benefit that HP gained from the merger was that it now was definitely a household name, ousting long seated rivals. Its largest competitors, EMC and IBM, in the commercial and enterprise quadrant are not household names per say.

IBM has been around longer than the dinosaurs, but very few households actually have an IBM laptop that was purchased by an individual consumer for personal use. Since the merger, IBM’s PC division was purchased by Chinese manufacturer Lenovo in 2005. So, when people go to work, and they have three competitors standing in front of them, they choose the one they bought for home use because they feel comfortable with their products which leads us back to individual behavior and emotional versus rational purchasing. 2 Supply, Demand and Other Nefarious Economic Principles

The first economic principle that Fiorina failed to understand was the difference between total revenue and total cost opportunity. She simply did not recognize the nature and importance of profit. Fiorina either was misinformed, or did not use the sources within the company, including the firm’s finance, marketing, and/or legal department to obtain data about the implicit costs of her decision to merge with Compaq. The second economic principle that was overlooked was the amount that would have to be invested today at the prevailing interest rate to generate the given future value.

The third principle that was not considered was the present value of the income stream generated by Compaq minus the current cost to acquire Compaq. (Baye, 2009, pp. 5-15) Although Carly Fiorina had built herself into a fierce leader, as evidenced in 1998, she was soon to find out that leadership and management are quite different indeed. She was named the most powerful woman in American business, the then group president of Lucent Technologies’ global service provider business, Fortune magazine proclaims in its Sept. 24 online edition.

Talk-show producer Oprah Winfrey followed at number two. (AllBusiness, 1998) The text states, “Many companies fail because their managers get bogged down in the day-to-day decisions of the business without having a clear picture of market trends and changes that are on the horizon. ” (Baye, 2009, p. 36) Supply and demand is a qualitative tool which allows managers to see the big picture. Some attributes that become apparent through this type of analysis are the ability to predict trends in the market to include price fluctuations of your products as well as your major competitors.

Read more

Dell’s Problem in China

In recent years, the Texas-based manufacturer of computers and other related peripheral computing devices known as Dell has begun to experience significant success in China, but not without overcoming significant challenges specific to the Chinese markets. Some analysts have been quick to celebrate the company’s success as principal evidence that Dell has not only learned from its lessons, but that the market for personal computers in China is undergoing a maturation of sort. (Zhang, 2005)

However, the most critical insight to be gathered from Dell’s experience in China is not merely a general understanding of the peculiarities of a foreign country, but the heterogeneity of its markets.

The successful emergence of Dell in the mid-1980s is largely attributed to its direct sales model, which arose more out of necessity rather than out of any broad designs for the company’s direction. The direct sales model’s principal motivation is efficiency, which was a critical issue for the company, then called PC Limited, and is achieved through the elimination of intermediaries between it and the customer. (Pletz, 2004) Rather than dealing with resellers to determine the needs of customers or accumulate a large inventory of products, Dell chose to place itself directly between the market and the suppliers. Effectively speaking, this means that products are built by the company and their product line is kept up to date.

Furthermore, the company did not maintain retail outlets to showcase their products, relying instead on direct sales to PC customers, removing many of the costs that are associated with maintaining a retail chain. Pletz (2004) also notes that the Internet proved to be a great boon to Dell because it significantly improved the company’s ability to gather customer data and effectively acquire pricing feedback and predict future trends, as well as tighten its link with supplier databases.

However, in recent years, the direct model has come under intense scrutiny in the wake of a receding market position and a diminishing stock value for Dell. This is because the direct sales model is mostly effective in the business and government markets, and Dell’s incarnation of it does not apply well to consumers and small-to-medium businesses (SMBs), most specifically in its attempts to expand its business outside of the U.S. and towards China, now seen as a lucrative site for business and commerce following the liberalization of its markets. Lee (2005) notes that a practical reason behind the failure of Dell’s business model of direct sales is that it simply does not play well outside of the major cities, which is where the large-scale customers it appeals to the most are.

[Dell] is out of sync with shifting market conditions in fast-growing China. … demand is emerging elsewhere — in hundreds of smaller cities, […] where even some business customers want to see products before they buy. That’s where competitors … have been selling briskly through retail shops. Says HP Executive Vice-President Ann Livermore: “You have to wonder, how well does the direct model work in the hinterland?” (Lee, 2005)

As a result, Dell is unable to replicate the success it has in China’s urban centers within the conditions of the semi-urban and rural markets. Not only are many Chinese customers wary about purchasing products sight unseen, but they are also far less enthusiastic about owning credit cards and using them religiously like their American counterparts.

Additionally, there is a certain degree of cultural hesitation towards making purchases over the phone or the Internet.

The success of its competitors in these markets is no mere chance. Its archrival Hewlett Packard has invested heavily into local retail infrastructure and support, which effectively holds the hands of its customers in making their purchases. On the other hand, the homegrown powerhouse Lenovo Group and Taiwan-based Acer present more conservatively priced options.

These are strengths should not be discounted, as they are critical to winning customers over. Sheff (2002) notes that while demand for personal computers may be spiraling upwards in China, personal computers remain unaffordable for most Chinese. To be blunt about it, personal computers are a major investment and it is not only important for consumers to feel secure throughout the process of purchasing one, but it would be presumptuous for companies, not just Dell, to think otherwise. Dell’s business model is inappropriate in this aspect, because it ignores this deep-seated need of customers.

To this end, Dell has not only begun investing in a physical presence in the form of kiosks and retail outlets inside and outside of China, but it has also begun outsourcing its consumer product design in order to tailor its products more specifically for the Chinese market. Because the market of China is currently moving at a rapid rate, this is a promising strategy as it allows the company to recognize the detrimental effect of generalizing the product forecasting it conducts in its home turf across the international markets.

A more controversial move however, has been Dell’s decision to partner with retail chains such as Costco and Wal-Mart in an attempt to distance itself from the direct sales model. As CEO Michael Dell has opined repeatedly in numerous press statements, “The direct model has been a revolution, but it is not a religion.” This is not an entirely new enterprise for Dell, as it used to sell through such chains in the early 90s in the United States. However, those operations ceased in its attempt to concentrate on the direct model in the face of disappointing profit margins in that area. A return to retail holds the promise of augmenting its present direct sales strategy with additional profits and a more comprehensive coverage of the market for personal computers.

Additionally, Sanders (2007) opines that a successful expansion into the retail market can help “polish up the company’s tarnished customer service image by serving as a drop-off point for products that need servicing.”

However, there is some concern from analysts that such an exploration of alternative channels risks compromising its strength in the direct model, simply by diluting the focus of its operations. Furthermore, there is the risk that shareholders could restrict the growth of these alternative channels for the short-sighted reason that retail requires significant costs and investments that may not see a return until some years later.

REFERENCES

Pletz, J. (2004, May 3) “Dell changed the industry with direct sales.” Austin American Statesman. Retrieved online on March 10, 2009 from: http://www.statesman.com/business/content/business/stories/archive/0503dell.html

Zhang, I. (2005, July 5) “For Dell, Success In China Tells Tale of Maturing Market.” The Wall Street Journal.

Lee, L. (2005, November 7) “Dell May Have to Reboot in China.” BusinessWeek. Retrieved online on March 10, 2009 from:  http://www.businessweek.com/magazine/content/05_45/b3958036.htm

Sheff, D. (2002, August) “Enter the Dragon.” Wired Magazine. Retrieved online on March 14, 2009 from: http://www.wired.com/wired/archive/10.08/legend_pr.html

Read more

The Merger of HP and Compaq

Abstract

The paper discusses the nature of a merger and one of the biggest mergers in the last ten years i.e. the merger of HP and Compaq.  It further discusses the discussions of analysts and some stakeholders’ position of the merger and how it eventually turned out.

Stanford educated William Hewlett and David Packard started their company with $538 as capital in the garage of one of its founders, David Packard.  Their initial product was a resistance-capacity audio oscillator, a machine used for testing sound equipment.

It was in 1939 when they formalized their partnership and tossed a coin to determine the order of their company name, Hewlett-Packard [HP]. It was incorporated in 1947. Ten years after its incorporation, HP shares were offered to the public.  The partners agreed that Hewlett will take charge of technological development while Packard will handle the management aspect of the organizational structure.

After World War II, the electronics sector was rapidly growing particularly in defense and industrial areas.  HP took full advantage of this situation. In the last world war, the company was utilized to assist the former professor of William Hewlett and David Packard at Stanford, Professor Frederick Terman. HP was asked to produce microwave signal generators for the professor’s research on antiradar projects. By 1950, HP had 70 products and was earning $2 million.

In 1951, HP introduced a device, HP524A, which substantially reduced the time required to measure radio frequencies from ten minutes to about two seconds. The device was widely used by radio stations using FM band. During that time, the FM band was newly established then and the device functioned to maintain accurate broadcast frequencies. By 1958, HP revenues reached $30 million. It was also during this time that HP had its first acquisition. It acquired a company engaged in the manufacture of graphic recorders, F.L. Moseley Company.

The first computer developed by HP in 1966 was for its own company product control. Another of the early significant products of HP was its first desktop scientific calculator which came out of its production lines in 1968. In 1972, HP introduced to the market a handheld scientific calculator and a microcomputer.  However, in 1973, Texas Instruments offered a lower priced scientific calculator.

HP entered the personal computer business in 1980 and one of its best-selling product, the HP LaserJet printer, was introduced only in 1984. By 1989, HP was having a revenue of $829 million. However, the early 90’s was not good to HP’s business. Although its HP’s 95LX palmtop personal computer was a best seller, it has to restructure in order to cope with the demands of the industry and effectively retain its position.

The resurgence of its business was also brought by its aggressive expansion on the personal computer (PC) business in the mid-90’s. In 1992, HP’s share in the PC market was only one percent but in mid-1997, it jumped to number three following Compaq and IBM and outgunning Dell Computer.

In 1998, HP reviewed its operations and they decided to create a separate company to handle its non-computing segment. The business generated by this segment of their operation represented 16 percent of its total income at $7.6 billion. The new company carried with it the following products: test and measurement products and service, medical electronic products and service, electronic components, and chemical analysis and service.  The following year, HP had a new President and CEO in the person of Carleton (Carly) S. Fiorina. Carly Fiorina had 20 years of experience at AT;T and Lucent Technologies.

On the other hand, it was in the summer of 1981, when three senior managers of Texas Instruments (TI) decided to form a company that will produce a personal computer (PC) that is at par with the ones produced by IBM.  They were Joseph R. Canion, James M. Harris, and William H. Murto.  They only had $1000 each so they went to Ben Rosen, President of Sevin – Rosen Partners, a venture capital firm.. Ben Rosen who invested $2.5 million. In 1982, the company was incorporated and called Compaq Computer Corporation.  The company is a public company listed in the New York Stock Exchange.

Compaq practiced the consensus type of management wherein inputs from different divisions were considered before a new product is launched. In 1983, Compaq was one of the first companies who introduced to the market the first briefcase computer or laptop. In that year, the company substantially grew.  Its capability expanded from 200 machines at the start of the year and having 9,000 by yearend.

In 1986, Compaq made it to Fortune 500. It was a record as they achieved such recognition in less than four years of existence. The phenomenal growth of Compaq is attributed to its good relationship with its dealers.  Its dealers do not have to compete with the company because it does not have a direct sales and this provides a sense of security to the dealers. Also, “Salespaq”, an agreement with their dealers wherein the latter’s cost of advertising, sales training, or incentives are paid by Compaq, provided an additional motivation to its authorized dealers.

In the late 80’s Compaq has shown that though it is relatively a new player, it is a leader in introducing new technology. In 1987, Compaq in collaboration with Intel produced the DESKPRO 386 which was three times faster than IBM’s fastest computer.  By the time IBM introduced its version using the same chip of Intel, Compaq was already developing its portable version.

By late 1989, Compaq introduced the SYSTEMPRO and DESKPRO 486 which utilized a hardware known as EISA (Extended Industry Standard Architecture). The hardware was designed to considerably increase its speed thereby enabling it to perform multitasking and networking operations. Sales reached $3.6 billion in 1990 with 3,872 authorized dealers all over the world.

However, 1991 was a tragic year for Compaq. Economic recession, price competition and problems in distribution brought about a slump for the first time in its history.  Eventually, Chief Executive Officer (CEO) and one of the founders, Joseph R. “Rod” Canion, resigned after a $70 million third quarter loss was reported. The last remaining founder, James C. Harris, who was then the vice-president of engineering also left the company in that year

Nevertheless, through its management restructuring, new products and aggressive pricing, Compaq again regained its position as one of the leaders in the industry. By 1996, its revenue was 1996 was $20.01 billion with a net income of $1.32 billion. In 1997, Compaq has a reported annual sales of $ 24.58 billion and a workforce of 32, 565. Prior to its merger with HP, Compaq is into desktop computers, portable computers, workstations, PC servers, entry servers, midrange servers and computer services. Compaq acquired Tandem Computers Incorporated, Microcom, Inc. and Digital Equipment Corporation.  In 1998, Compaq was recognized by Forbes as the 1997 Company of the Year.

Also in the same year, Compaq had a change of leadership and Michael D. Capellas became its new President and CEO. It was also in this year that Compaq made a shift in its operations and focused on becoming an IT and internet leader. Through its acquisition of Digital Equipment Corporation, Compaq also acquired Alta Vista, known at the time to be the leader as an Internet search and navigation guide.

The first news of a company merger between HP and Compaq was announced on September 3, 2001. According to Carly Fiorina, the merger was in accord to her mandate to “recreate and reinvent HP”.  The merger is the brainchild of Carly Fiorina and analysts would point out that she has essentially two hurdles to tackle i.e., whether the merger will push through due to opposition and if it will, is the merged company going to perform as expected.  Observers added that a failure in any of the two will surely lead to her ouster in HP.

Carly Fiorina graduated from Stanford University with a degree in medieval history and philosophy. She also earned a master’s degree in business administration from the University of Maryland at College Park and a Master of Science degree from the Massachusetts Institute of Technology. She was 47 years old when she joined HP.

In the 60-year history of HP, Carly Fiorina was first outsider and woman to be given the leadership reins. Also, she was the first non-engineer to occupy the position.  HP insiders said that there were 300 applicants who were considered for the position and she was thought of the right person to handle HP.

While working at Lucent, Carly Fiorina was responsible for expanding its international business, planning both its initial public offering and its eventual separation from AT;T. According to Michael Useem as quoted by Knowledge@Wharton (2005), Carly Fiorina has an excellent leadership style, very decisive and she has recognized the necessity of transforming the culture in HP.

With the foregoing, the most basic question may be asked on what is a merger and why did HP and Compaq merged. Most companies decide to acquire or merge with another in order to achieve the so-called economies of scale. Usually, the acquisition would pertain to a strong competitor.  However, the process of acquisition and finally of merging two companies are often easier said than done.

Andrews (2002) has given five key indicators to determine if the companies about to merge has a probability of being successful namely, compatibility of objectives, benefits in economies of scale,  synergy, location, potential growth.

The first consideration will be if the objectives of the company to be merged will jive. Otherwise, if the two companies are adversely directed on its goals and mission, then combining them will be a challenge in itself as it is imperative that one company has to have focus along the same direction.  The second consideration is if there will be actual rather than perceived economies of scale. If the resulting company is so big and becomes bureaucratic, then the expected benefits may not be achieved and time and money will be wasted streamlining the company instead of focusing on new products and sales growth.

Obviously, a bigger company does not necessarily mean a better one.  The third factor is the synergy of the resulting company.  If one company is the type that the existing regulations consist of jeans attire, flexi-time, first name basis organization and another is the rigid rules, formal type coat and tie affair, then it is a virtual challenge to enforce new rules for either one of the set of employees.  The resulting rules may not have general acceptance which can put down productivity of the employees. Fourth, it is suggested that the headquarters of the two companies to be merged must be located near each other.

The different work environment of the two companies will have an impact on the working relationships of the employees. If one company is located in a fast-paced environment and the other is based in a relaxed and comfortable work area, it is a potential problem.  Lastly, there should be a potential for growth because essentially, merging two companies is an investment and stockholders will expect a return of investment.  If one company has a technology which can open a new market and it is more cost efficient to buy the company rather than develop the technology, then it would be a good decision to buy.

Also, if the other company is a successful competitor and learning from them on the various areas of operation can be beneficial to the company, then it is also a good reason to acquire this company. However, if hiring some of the other company’s people will be more beneficial than acquiring the whole company, then it might not be a good decision to merge. Bottom line is,  in the acquisition or merger of two companies, a good background and feasibility analysis of the two companies and its resulting one is a must.

According to Hoopes (n.d.), the idea of merging HP and Compaq started in a telephone conversation between Carly Fiorina and Michael Capellas of Compaq sometime in June 2001.  The purpose of said call was regarding some licensing agreements but the conversation turned into a discussion on competitive strategy and the topic of a possible merger was started.

Ascierto and Meritt (2001) reported that the proposed merger would be an organizational challenge per Nathan Brookwood, president of market-research firm Insight64.  It must be remembered that when the merger of HP and Compaq was broached, the latter has not yet finished the struggle it had in its acquisition of Digital and Tandem. Reportedly, Nathan Brookwood said, “I think this will be a big challenge for HP, merging the cultures. With Compaq, I’m not sure they’ve finished the Digital Equipment merger at this point. So you’ve got, essentially, Compaq, Digital, Tandem and HP all coming together here.”

Evidently, HP and Compaq’s merger was not really a match made in heaven.  The acquisition of HP would cost approximately $25 billion and some 15,000 employees have to be laid off.  The merged company will have a share distribution of 64 percent for HP shareowners and 36 percent for Compaq shareholders. Carly Fiorina will still be the CEO while Michael Capellas will be the President of the new company.  In the new set-up, HP’s and Compaq’s products will be consolidated into four major groups: services, imaging and printing, access devices, and information technology infrastructure.  Also read HP strategy analysis

Additionally, the opposing view, led by Walter B. Hewlett and David Packard who are the heirs of the founders, points out that getting the market share of Compaq does not really translate to becoming a leader.  Others pointed out that when talks of the merger started, Compaq was in a financial mess brought about by their recent acquisition of Digital Equipment Corporation and Tandem Computers Incorporated. Compaq offers no new technology/capabilities and upon the announcement of the merger, HP’s stocks plummeted.

On the other hand, those supporting the merger argue that it is all about competitive positioning. It will make the merged company the market leader after the merger, service business will grow, annual cost savings will be $2.5 billion and it will improve the financial and market position of the company.

Moreover, Andrews (2002) further commented that the merger was not really as successful as what was expected. He cited factors such as diverse culture between HP and Compaq, a sales force which is cross-competing eventually resulting to distracted and confused clientele thus resulting to loss of good customer relationships.

According to him, the HP and Compaq merger does not address the direct selling of Dell, the service and service outsourcing of IBM and the large-server sales of Sun.  In short, HP and Compaq’s merger may create a bigger company and may have bigger sales but there is no focus on challenging the competition hence, the revenues is not for a long.

Many commentators/analysts agreed with Andrews (2002).  In fact, they claim that the fact that Carly Fiorina was eventually fired in February of 2005 is a manifestation that she did not achieve the objectives of the merger. Andrews (2002) attributed the recent improvement in HP’s performance on the fact that it has “refocused on its core business”.

On the other hand, Keefe and Zehr (2007) reported that the merger was now reaping its fruits. They reported that the HP/Compaq has surpassed the revenues of IBM in 2006 and also beat Dell as the number one PC company in the world. They stated that in their interview with Carly Fiorina, she said that she was happy her effort to merge the companies paid off.    However, it was also reported that the credit goes to Mark Hurd, the replacement of Carly Fiorina who was more of an operations man.

Michael Useem, director of Wharton’s Center for Leadership and Change Management as interviewed by Knowledge@Wharton (2005) captured what could have gone wrong when he said, “xxx Fiorina scored high on leadership style, but she failed to execute strategy.” Notably, HP/Compaq shares surged after the announcement of Carly Fiorina’s separation from HP./Compaq.

In its 2006 HP Annual Report, it stated that HP it is now aiming to be the number one IT company in the world.  Its revenue is reported to have increased by six percent or revenue of $91.7 billion. In said report, it has also been admitted that HP is still in the process of transforming and has not yet fully transformed.

In the same report, it said that there are three management levers being considered namely, targeted growth, operational efficiency and capital strategy. Essentially targeted growth has acknowledged that although the philosophy of believing that customers will seek out a company with a good product has to some extent worked before, it is thought to be better if a good sales force will push the products. In operational strategy, streamlining the operations to be more efficient is the drive. Lastly, it is the objective of the company to have more capital by lowering the cost.

Indeed, HP has gone a long way from its garage beginnings. Whether its merger with Compaq, which also had its share of success, will translate to a long term product leadership will remain to be seen.

References

Andrews, S. (2002). Business Aspirations “Keys to Successful Mergers”. Retrieved on October 11, 2007 from http://www.aspirenow.com/leader_0302_successful_mergers.htm

Ascierto, J. and Merritt, R.(2001, September). Analysis: HP-Compaq merger catches industry off guard. EE Times. http://www.eetimes.com/story/industry/systems_and_software_news/OEG20010904S0092

Burrows, P. and Elstrom P. (1999, August 2). HP’s Carly Fiorina: The Boss. Retrieved on October 11, 2007 from http://www.businessweek.com/1999/99_31/b3640001.htm

Carlock, R., Florent-Treacy, E. and Cooper, R. (2003). The HP-Compaq Merger A Battle for the Heart and Soul of a Company.  INSEAD Case Study: The HP-Compaq Merger. Retrieve on October 11, 2007 from http://knowledge.insead.edu/abstract.cfm?ct=11865

Compaq Computer Corporation. (n. d.) Retrieved on October 11, 2007 from http://www.fundinguniverse.com/company-histories/Compaq-Computer-Corporation-Company-History.html

Hewlett – Packard Company. (n. d.) Retrieved on October 11, 2007 from http://www.fundinguniverse.com/company-histories/HewlettPackard-Company-Company-History.html

Hewlett – Packard Company. (n. d.) Carly Fiorina. Retrieved on October 11, 2007 from http://www.hp.com/hpinfo/execteam/fiorina/index.html

Hewlett – Packard Company. (n. d.) Carleton S. Fiorina. Retrieved on October 11, 2007 from http://www.hp.com/hpinfo/execteam/bios/fiorina.html

Hoopes, C. (n. d.) The Hewlett-Packard and Compaq Merger: A Case Study in Business Communication. Retrieved on October 11, 2007 from

Inquirer Staff. (2005, February 9). HP’s Carly Fiorina Fired. Retrieved on October 11, 2007 from http://www.theinquirer.net/en/inquirer/news/2005/02/09/hps-carly-fiorina-fired

Jaques, R. (2006, November 8). Five years on: HP Compaq Merger Declared A Success (IDC believes the deal has achieved its main objectives). Retrieved October 11, 2007 from http://www.vnunet.com/vnunet/news/2168205/five-years-hp-compaq-merger

Keefe, B. and Zehr, D. (2007, April 29). HP flying high five years after merger with Compaq. COX NEWS SERVICE. The San Diego Union Tribune. Retrieved on October 11, 2007 from http://www.signonsandiego.com/uniontrib/20070429/news_1b29hp.html

Knowledge @Wharton. (2005, March 30). HP After Carly: What Went Wrong? Retrieved on October 11, 2007 from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1144

MMV CBS Broadcasting Inc. (2005, February 9). Hewlett-Packard Fires Fiorina. Retrieved on October 11, 2007 from http://www.cbsnews.com/stories/2005/02/09/ap/business/main672608.shtml

Neel, D. (2002, March 18). Analysis: Pondering the consequences of an HP-Compaq merger. Retrieved on October 11, 2007 from http://www.infoworld.com/article/02/03/18/020318hmmergeroutcome_1.html

The HP Compaq Merger Special. (n. d.) Retrieved on October 11, 2007 from http://www.ciol.com/content/special/hpCompaq

Wohl, A. (2001, December 13) Amy D. Wohl’s Opinions: The HP-Compaq Merger: A Status Report . Retrieved on October 11, 2007 from http://www.wohl.com/wa0176.htm

Read more

HP Case Study – Deskjet Printer Supply Chain

DeskJet Printer was becoming one of Hewlett-Packard (HP) Company’s most successful products. Sales had grown steadily reaching around 600,000 units in 1990. Uneven distribution of inventory was one of the key issues which needed to be addressed since in spite of having distribution centres (DC) filled with printers, organisations in Europe claimed that inventory levels needed to be raised to maintain satisfactory product availability.

Also there seemed to be an issue of requiring the buy-in of the various parties on what was the right level of inventory to be maintained. Worldwide sales were about 17 million units which amounted to $10 billion. The US-Western Europe markets were mature while that in Eastern Europe and Asia-Pacific were developing markets. The ink-jet printer (DeskJet was one of the products in this category) had around 20% of the retail printer market. HP was the market leader in US while Cannon was in Japan and Europe had competitors like Epson, Manisman-tally, Siemens and Olivetti.

The Vancouver Division of HP (the personal printer activities were consolidated) introduced the Kanban process and converted it to stockless production which also reduced cycle time and reduced inventory time from 3. 5 months to 0. 9 months. The Supply Chain The network of suppliers, manufacturing sites, distribution centers (DCs) dealers and customers for the DeskJet product comprised the supply chain. Manufacturing which involved two stages- Printed Circuit Assembly (PCAT) and Final Assembly and test (FAT) was done at HP in Vancouver.

The components needed for the manufacturing process were sourced from other HP divisions as well as from external suppliers. Currently, localisation of the printer which meant customizing to the specific region was done at the factory. Outgoing products were shipped to the three DCs by the ocean. No significant buffers were maintained between the PCAT and FAT stages. Here d, the demand forecasted is given in Table 1 as the mean of the demand. Lead time for DC within US is one-day transporting time from Vancouver to California and one week factory cycle time.

That is a total of 8 days. For Europe and Asia, the lead time was 42 days (5 weeks to ship and one week factory cycle time) by sea and 14 days (1 week to ship by air and I week factory cycle time). The Reordering interval is assumed to be 7 days as per the question. The safety stock is obtained from the standard deviation of monthly demand ?. The company target for the line item fill rate which has been estimated by the marketing division is 98%. The z value for the 98% fill rate in the equation is 2. 05.

Thus the safety stock for the given lead time and review period can be found. The average demand is found from the mean of monthly demand and the lead and review times. The quantity of inventory is computed by the addition of the average demand and safety stock. There are two possible means to calculate the inventory carrying costs. Using HP’s cost of debt and warehousing expenses an inventory cost of 12% is obtained and if the ROI expected on new product development projects is used the inventory carrying cost is 60%. The cost of a single unit is taken to be 400$.

Therefore the inventory carrying cost per unit is either 48$ or 240$. The total inventory carrying cost is calculated using both rates by multiplying them with the number of units that form the inventory of the three DCs. The total sales are 600,000 units which are close to the total of the forecasted demands. Therefore it is assumed that the sales in the different regions are equal to the forecasted demands. This is then used to calculate the weeks of supply. The steps to be taken to compute the inventory is given above.

The data collected by the team to improve the forecast is used here. Only the inventory levels in Europe are considered for comparing the various alternatives. The expenditure required to set up a manufacturing facility in Europe is not known. This will be a long-term investment and depends on the scale of demand in Europe. It should be sustainable and have sufficient volume to justify its inception. Assembly can be done in Europe: The manufacturing process should be modified so that final assembly can be done at the DC in Europe.

These processes that can be done in Europe include the power supply and the manuals. This will help reduce the lead time by reducing the factory cycle time. These should also enable the DC to be more flexible. The shipping costs will also come down. The actual savings cannot be calculated from the given data and more information is required. The top management prefers to maintain the DCs in a warehouse mode as it will difficult to manage the work in the DCs. Additional expenditure will be incurred in setting up support processes. Conclusion

If 12% is considered to be the carrying cost of inventory then it is more cost-effective to just use the new data to forecast the demand and thus maintain a 98% line item fill rate. But if it is 60% transportation by means of air should be used. In the long term as the demand in Europe builds up the setting up a facility in Europe can be considered. As an initial step in this process assembling in Europe can be considered. Another alternative that can be considered is inventory pooling by building up finished good inventory in the factory.

Read more

The Industry Structure & The Behavior of Firms in the PC Industry

In this paper I will discuss the industry structure and the behavior of firms in the Personal Computer Industry. The personal computer industry has five leaders: Compaq Computer Corporation (CCC), Dell Computer Corporation, International Business Machines (IBM), Hewlett-Packard, and Gateway, (Industry Survey, Apr. 2000). The PC industry, as discussed in the paper, is comprised only of home/business use machines, not mainframes, databases, or any kind of servers or super-computers. The PC industry is a fast-growing, consumer-based oligopoly.

I will prove the latter through the use of industry characteristics and firm behaviors by giving an overview of each leading firm and their behaviors”, then by combining them into an industry analysis. The companies will be addressed from top leader to bottom. Compaq Computer Corporation,(CCC) is the current industry leader. CCC boasts a 1999 market share of 12. 8%. However, this figure has declined slightly from its 1998 share of 13. 4%. The dip is due to Dell Computer Corp. “s heavy presence in the small PC market, (Industry Survey, Apr. 2000).

Compaq has a wide range of PC products from smaller, less expensive machines to more costly, high-tech systems. CCC has been most successful with their smaller machines, targeted to the home/family segment, because they are able to sell large quantities. However, Compaq has been unsuccessful in retaining customers because most of them were pleased with their smaller machines and did not upgrade to CCC”s more expensive, high-tech systems,(Hamblen 1-2). Customer retention has been a problem for the forty billion-dollar company, (Hamblen 1-2).

It is my assessment that Compaq does still remain the leader because their products are very easy to buy for the uneducated consumer. You may simply walk into the WIZ or BEST BUY and there are five or so Compaq machines all competitively priced with a good range of attributes, usually not the best that a veteran user would require. For instance CCC”s newest product, the iPac, is a very simple-to-use, inexpensive machine. It is supposed to satisfy business workers” needs for a useful computer at low cost,(Wildstrom 1-2).

Another problem in CCC”s not-to-distant future is their distribution costs. With the use of the Internet, competitors have been able to reduce and even eliminate distribution costs. To follow suit Compaq plans to increase direct sales in the future, according to Micheal Capellas, CEO (Hamblen 4). The future for CCC is quite hazy. Despite the sales numbers and the heavy bottom line, CCC”s stock price has sat down in the low $30″s,(Hamblen 1). Competition is increasing daily and Compaq needs to distinguish itself in the marketplace.

They”ve already experienced a decline in markets share, only they can change their fate. Dell Computer Corporation, the second leading computer manufacturer, began by selling PC”s directly to consumers. Their first customers ordered over the phone and Wold Wide Web. To this day Dell still has no brick and mortar retailers and does not distribute its product to resellers. In the business to business market Dell has excelled, but until recently, the profitable company was not so profitable in the home-user segment,(Industry Survey, Apr. 2000).

The company”s new strategy, to gain market share, has proven very effective. Dell now posts a 62% gain in world wide PC shipments and a 2. 6 share-point gain from 8. 2% in `98 to 10. 8% in `99,(Industry Survey, Apr. 2000). Recently Dell”s presence has been felt in the growing PC market. This has forced competitors to be very careful about pricing in this highly elastic industry. Dell”s profitability is also notable, since it has minimal distribution costs and does very little advertising Dell is extremely profitable. However, rough times may be on the horizon for Dell.

Analysts are worried because profit growth projections were cut at least 10% by CFO Thomas Meredith, who declared he is only trying to set more realistic goals and that the company will still post growth, (Burrows 1-2). Recently Dell has made some key moves that should boost revenues including beefing-up its web site and a joint venture with Internet giant AOL, (Money 1-2). Dell Computer Corporation is still a major player in the PC industry and will continue to be in the future. Unlike Dell and Compaq, IBM has not had extreme success in the PC market.

It is known that leaders at IBM never believed that the PC would be an important device and that only a small portion of the population would ever own a PC. Obviously, they were very wrong. IBM has not done a bad job catching up to the pack, though; it now has the number-three market share of 7. 6%, (Industry Survey, Apr. 2000). IBM plans some new strategies after its low ranking in the PC market. This new strategy is to end all retail selling and go completely direct, IBM plans to sell its Aptiva system exclusively over the Internet in the near future, (Industry Survey, Apr. 000).

This will lower costs and possibly increase the bottom line for the computer giant. Like IBM, Hewlett-Packard made one mistake and cost itself billions of dollars in revenues. HP is a large electronics conglomerate. HP manufactures everything from calculators to top-secret government appliances. For HP the PC market is one of many. Originally Hewlett-Packard was the standard in computer electronics; however, this is not reality today. HP”s reputation declined through the `80s and early `90s because of poor quality management.

To regain the respect they had lost the marketing and engineering departments at HP worked their fingers to the bone to create a new image for the company. This was very effective; today HP owns a modest 6. 2% of the PC market and a very healthy reputation for quality PC”s and peripherals, (Industry Survey, Apr. 2000). HP has had some growth in the past few years but has failed to match the industry growth rates. The company”s years of poor quality put a considerable hurt on their future growth; while HP was busy filling in the hole it dug for itself, industry leaders like Compaq and Dell were basking in their success.

Read more

Laptop Industry

Laptop Industry Andrea Emulator The laptop industry is evident that technology in our world today is becoming more advance. Since its increase in demand, laptops are becoming more personal and convenient to the needs of its owner by offering different selections of color, style, and internal hardware. Laptops are becoming more popular in households, businesses, and everyday lives. This analysis will describe growth rates, suppliers, competition, and customers and how they contribute to the industry of laptops. Industry Specific Technology is constantly changing.

The 1st laptop was introduced in 1981 by the Osborne Computer Corporation. This technological phenomenon changed the way we would use computers forever. For the price of 1800 dollars, you could own an Osborne 1 laptop. It included about an additional 1500 dollars worth of programs such as Words word processing, spreadsheet software, Microsoft MAMBAS programming language, etc. It weighed about 24 and a half pounds and also included a protective case. In 1991, the Apple Company introduced its version of the laptop.

The Apple Powerboat was portable, which included a palm rest and pointing vice that became standard for future laptop designs (Carrey, Dacha). A major change to the laptop industry was the release of Windows 95 in 1995. Windows 95 became the default operating system for non-Apple laptops. The release of Windows 95 stabilized several features of laptop design, and brought about the creation of the style of laptops we know today. (Carrey, Dacha). As shown in table 1. 4, the amount of shipments, imports, exports, and annual growth has changed over the past few years.

Important industry statistics related to the laptop industry would be income and emend. These statistics are important because the purchasing consumer has to be able to afford the product and additional accessories for the computer. The American economy is becoming better so that when consumers are more comfortable with making a more expensive purchase there will not be as much pressure on the buyer. The North American Industrial Classification System (NAZIS) codes the laptop industry as Electronic Computer Manufacturing with a number code of 334111. The laptop industry does not have a trade association.

Major Competition The laptop industry dominated mainly by the five top competitors Hewlett-Packard (HP), Dell, Acre, Leno and Toshiba. Collectively these companies represent about 60% of the entire industry based on the shipping rates (Computerized). As seen on table 1 . 1, Hewlett Packard has been leading the PC company over the past couple of years. Hewlett Packard is a leading company because it caters to the need of its many customers. It provides service to businesses, government agencies, consumers, and schools in more than 170 countries which proves why it is the top company in its industry (Hypochondriac).

Although the Apple Corporation has been around for some time now, they are slowly coming up on the top brands list. They are ranked in the top ten, but with the positive reputation that came with the reinvention of the “pod” By Appositively happier than ever. This reputation is making it easier for Apple to stay in the market and increase it sales. The Apple Company released that it has had record numbers in this past quarter alone. Also, records show that the majority of Apple’s customers are older and their income is higher (Table 1. 2) as of 2008.

Even the of individuals with a four year degree has a different brand preference (Table 1. 3). | Supply Chain A significant portion of the world’s PC’s and PC components are manufactured by Taiwanese Manufacturers (DMS) headquartered in Taiwan, but who manufacture in China (William Foster). The suppliers for all competitors are quite limited in terms of bargaining power due to increased communication of hardware components. Intel and MAD, the two major microprocessor suppliers, compete for increased market share. However, their power is limited due to their need for product promotion mongo consumers.

For hardware such as hard drives (Samsung, Western Digital, Seagate, etc. ) or motherboards (Intel, MS’, Estates, etc. ) there is very limited bargaining power due to their lack of branding on the finished product. Most manufacturers use different suppliers for the same component, by sourcing their requirements from whoever is cheaper at that time. Thus, if the prices are not competitive, the suppliers risk losing out to their rivals (Ditty Shah, Bambina Dalai). Customers Customers have large bargaining power over manufacturers, since a major part of he total PC sales is made up of large volume buying from businesses.

In addition, consumers also have bargaining power in terms of dictating demand and buying preferences (Ditty Shah, Bambina Dalai). Institutions, government agencies, and corporations all purchase laptops to assist with their daily business operations. When purchasing any laptop, one main criteria that companies look for is the overall use of the computer. If the laptop computer is the only computer source that the company has, then the company would want to have more memory stored onto the computer.

This additional memory would cause the computer to cost more so the quantity may be lower than a lower quality laptop computer. Ending consumers would be unable to produce the computers due to specific chemicals and raw materials that make up the finished product, In conclusion, the laptop industry is constantly changing . With the American economy rising, the sales of laptops are going to increase as more companies and industries want to stay up to speed with our advanced technology. Every year there is a complex change to the laptop( Ditty Shah, Bambina Dalai).

Read more
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Close

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes
Live ChatWhatsApp