Digital Equipment, which had nearly twice as many employees as Compaq while generating half the revenue, had been a leading computer company during the 1970s and early 1980s. However, Digital had struggled during the 1990s, with high operating costs.
The HP Garage at 367 Addison Avenue is now designated an official California Historical Landmark and is marked with a plaque calling it the “Birthplace of ‘Silicon Valley'”. The company got its first big contract in 1938, providing its test and measurement instruments for production of Walt Disney Pictures’ hugely successful animated film Fantasia. This success led Bill Hewlett and Dave Packard to formally establish their Hewlett-Packard Company on 1 January 1939.
While Enterprise Computing, responsible for engineering and marketing of network servers, workstations and data-storage products, reportedly accounted for one third of Compaq’s revenues and likely the largest part of its profits, it was responsible for the earnings shortfall in Q1 of 1999. In addition, Rose was part of the “old guard” close to former CEO Pfeiffer, and he and other Compaq executives had been criticized at the company’s annual meeting for selling stock before reporting the sales slowdown.
What does to split mean?
verb (used with object), split, split·ting. to divide or separate from end to end or into layers: to split a log in two. to separate by cutting, chopping, etc., usually lengthwise: to split a piece from a block. to tear or break apart; rend or burst: The wind split the sail.
This allowed Compaq to compete in the “big-iron market” without incurring the costs of running its own services or software businesses. On September 30, 2010, Léo Apotheker was named as HP’s new CEO and President.
HP laid off thousands of former Compaq, DEC, HP, and Tandem employees, its stock price generally declined and profits did not perk up. Several senior executives from the Compaq side including Jeff Clarke and Peter Blackmore would resign or be ousted from the post-merger HP. Though the combination of both companies’ PC manufacturing capacity initially made the post-merger HP number one, it soon lost the lead and further market share to Dell which squeezed HP on low end PCs. HP was also unable to compete effectively with IBM in the high-end server market. In addition, the merging of the stagnant Compaq computer assembly business with HP’s lucrative printing and imaging division was criticized for obstructing the profitability of the printing/imaging segment.
verb (used with object), split, split·ting.
Rando, senior vice president and general manager of Compaq Services, was a key player during the merger discussions and the most senior executive from Digital to remain with Compaq after the acquisition closed and had been touted by some as the heir-apparent to Pfeiffer. Rando’s division had performed strongly as it had sales of $1.6 billion for the first quarter compared to $113 million in 1998, which met expectations and was anticipated to post accelerated and profitable growth going forward. At the time of Rando’s departure, Compaq Services ranked third behind those of IBM and EDS, while slightly ahead of Hewlett-Packard’s and Andersen Consulting, however customers switched from Digital and Tandem technology-based workstations to those of HP, IBM, and Sun Microsystems.
Origin of split
Carly Fiorina, initially seen as HP’s savior when she was hired as CEO back in 1999, had seen the company’s stock price drop to less than half since she assumed the position, and her job was said to be on shaky ground before the merger announcement. Detractors of the deal noted that buying Compaq was a “distraction” that would not directly help HP take on IBM’s breadth or Dell Computer’s direct sales model. Plus there were significant cultural differences between HP and Compaq; which made decisions by consensus and rapid autocratic styles, respectively.
- Rando, senior vice president and general manager of Compaq Services, was a key player during the merger discussions and the most senior executive from Digital to remain with Compaq after the acquisition closed and had been touted by some as the heir-apparent to Pfeiffer.
- At the time of Rando’s departure, Compaq Services ranked third behind those of IBM and EDS, while slightly ahead of Hewlett-Packard’s and Andersen Consulting, however customers switched from Digital and Tandem technology-based workstations to those of HP, IBM, and Sun Microsystems.
HP directly marketed its products to households, small- to medium-sized businesses and enterprises as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors. HP also had services and a consulting business for its products and partner products. In 1998, Compaq acquired Digital Equipment Corporation for a then-industry record of US$9 billion. The merger made Compaq, at the time, the world’s second largest computer maker in the world in terms of revenue behind IBM.
Around the same time Pesatori was placed in charge of the newly created Enterprise Solutions and Services Group, making him Compaq’s second most powerful executive in operational responsibility after Capellas. Dell and Gateway sold direct, which helped them to avoid Compaq’s inventory problems and compete on price without dealer markups, plus Gateway sold web access and a broad range of software tailored to small businesses. Hewlett-Packard’s PC business had similar challenges like Compaq but this was offset by HP’s extremely lucrative printer business, while IBM sold PCs at a loss but used them to lock in multi-year services contracts with customers. Fiorina helmed the post-merger HP for nearly three years after Capellas left.
Apotheker’s appointment sparked a strong reaction from Oracle chief executive Larry Ellison, who complained that Apotheker had been in charge of SAP when one of its subsidiaries was systematically stealing software from Oracle. SAP accepted that its subsidiary, which has now closed, illegally accessed Oracle intellectual property. The company was founded in a one-car garage in Palo Alto, California by Bill Hewlett and David Packard, and initially produced a line of electronic test and measurement equipment.
One of Compaq’s few bright spots was its services business, which was outperforming HP’s own services division. Vice-President for Corporate Development Kenneth E. Kurtzman assembled five teams to examine Compaq’s businesses and assess each unit’s strategy and that of key rivals. Kurtzman’s teams recommended to Pfeiffer that each business unit had to be first or second in its market within three years—or else Compaq should exit that line. Also, the company should no longer use profits from high-margin businesses to carry marginally profitable ones, as instead each unit must show a return on investment.
Rose was succeeded by SVP Enrico Pesatori, who had previously worked as a senior executive at Olivetti, Zenith Data Systems, Digital Equipment Corp. and Tandem Computers. Capellas was appointed COO after pressure mounted on Rosen to find a permanent CEO, however it was reported that potential candidates did not want to work under Rosen as chairman.
Overall, it has been suggested that the purchase of Compaq was not a good move for HP, due to the narrow profit margins in the commoditized PC business, especially in light of IBM’s 2004 announcement to sell its PC division to Lenovo. The Inquirer noted that the continued low return on investment and small margins of HP’s personal computer manufacturing business, now named the Personal Systems Group, “continues to be what it was in the individual companies, not much more than a job creation scheme for its employees”. One of the few positives was Compaq’s sales approach and enterprise focus that influenced the newly combined company’s strategy and philosophy. Analysts on Wall Street were generally critical of the merger, as both companies had been struggling before the announcement, and the stock prices of both companies dropped in the months after the merger agreement was made public. Particularly rival Dell made gains from defecting HP and Compaq customers who were wary of the merger.
Rose, senior vice president and general manager of Compaq’s Enterprise Computing group, resigned effective as of June 3 and was succeeded by Tandem veteran Enrico Pesatori. Rose was reportedly upset that he was not considered for the CEO vacancy, which became apparent once Michael Capellas was named COO.
Words nearby split
The company grew into a multinational corporation widely respected for its products, and its management style and culture known as the HP Way which was adopted by other businesses worldwide. HP was the world’s leading PC manufacturer from 2007 to Q2 2013, at which time Lenovo ranked ahead of HP. HP specialized in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. Major product lines included personal computing devices, enterprise and industry standard servers, related storage devices, networking products, software and a diverse range of printers and other imaging products.