The experience of an international student

The Microsoft vs. Yahoo game is over for now. One last comment: I lose respect for Ballmer because he ate his own words, shame on him; but I'm glad to see he doesn't care about losing face nearly as much as Yang, so MS still has hope. After all, business is business, you should never let pride take over your decision making.

Coincidently, the final project for our M&A class is the study of HP's 2001 acquisition of Compaq, another high profile event in the IT industry. This case is amazingly similar to the Microsoft/yahoo case, except one is about hardware, and one is about software. They both involve the big three, one is MS, Yahoo, and Google, the other is HP, Compaq, and Dell. In both cases, the merger is not intended to knock down the opponent, but rather intended to prevent themselves from being knocked down by the opponent. When mergers like this is proposed, there are always voices of doubts saying two dogs don't make a lion, or two weak guys don't build a strong team. I'd say I don't agree with this view at all. It might be true from a pure financial or "synergy" point of view, but when you a in the battle field only one side can come out alive, do numbers matter that much at all? At the time of HP/Compaq merger, everybody knows there will be serious consolidation happening in the industry. IBM will completely give up the PC business sooner or later, Gateway is too weak to become a major competitor, the strongest among the remaining three is Dell. If HP and Compaq don't do anything, most likely Dell will eat Gateway first, then knock down Compaq and HP one by one. When you foresee your own death if you do nothing, would you rather wait for a slow death or fight for your life at the price of a possible faster death? Obviously Compaq and HP chose to fight together for their lives although it's a very high risk move, while Yahoo will very likely surrender to its enemy Google. Here's the speech of HP CEO I made up to explain the necessity of the acquisition:" If we don't make the acquisition of Compaq now, I'm afraid 10 years from now I would have to say the following in my last speech as the CEO of HP:' When they (Dell, Lenovo, etc.) attacked IBM (‘s PC division), we didn't do anything. When they attacked Compaq, we didn't do anything. When they attacked our (HP's) PC business, we didn't do anything. Then they started attacking our enterprise and server business (the most profitable part of HP), and we found them too strong to be defeated. As a result, I now declare acceptance of an acquisition of HP by Dell (or Lenovo).'"

As it turned out, HP got lucky on the deal. Carly Fiorina had the vision to foresee all these scenarios and quickly accepted the invitation by Compaq. While she proved to lack the ability to carry the deal through, she was promptly replaced by Mark Hurd, an operational guy who made it work. Now viewing it in hindsight, HP and Compaq have quite successfully achieved their goal of making the deal by claiming the No. 1 seat in the PC market. Here is another quote of my analysis of the case:
"It put tremendous pressure on Dell, its most eminent threat. And not coincidently, Dell experienced a slowdown in recent years and had to take measures such as stepping out of the direct sale model and contracting its consumer electronics business to seek new growth. As Dell has to focus on its own problems in the PC market, it would have less resources and energy to attack HP in other fronts, i.e., printing and imaging, and high end servers, where HP has the most profit. As a result, HP is successfully defending its most valuable territory by attacking its enemy in their turf."
The side effect of HP's victory is that its PC market share helped it strengthen its position in the lucrative printing and imaging market.

So far so good for HP, but not so much. There is a huge opportunity in another front for HP, but Mr. Hurd is not making any moves yet. I'll talk about it tomorrow.