Hewlett Packard (HP) - Classical Case of Bad Acquisitions
NASDAQ Stocks - Hewlett Packard (HP) - Classical Case of Bad Acquisitions in MARKETS - Let me get straight to the point with the facts and keep it short and simple. Facts: Hewlett Packard (HP) ...
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Hewlett Packard (HP) - Classical Case of Bad Acquisitions

  1. Hewlett Packard (HP) - Classical Case of Bad Acquisitions

    Let me get straight to the point with the facts and keep it short and simple.

    Facts:
    Hewlett Packard (HP) has acquired 80 Companies in the last 15 years (Since April 1997). Among the 80 Companies that were acquired, only 25 are disclosed deals totaling to a little over 71 Billion USD. 65 more un-disclosed acquisition deals and i can assume that HP has spent over 100 Billion USD in the last 15 years just buying companies.

    Today, HP's current value (Market Cap) is less than 40 Billion USD. Even if someone wants to buy HP today at 25% more than its traded value, HP can be bought for 50 Billion USD.

    Its an undeniable fact that HP's top most management has screwed up in the last 15 years.

    On the contrast, HP has only acquired 28 Companies over 40 years (Between 1958 till 1997) under the eyes of its founders. Among the 28 acquired, only 4 are disclosed deals amounting to less than a Billion USD.

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    Source of Acquisition Details: List of acquisitions by Hewlett-Packard - Wikipedia, the free encyclopedia
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    My Views on the Facts Above:
    Two very simple reasons why HP failed with its acquisition in the last 15 years are below,
    • Very expensive acquisition buys.
    • Very little budget spend on R&D which in-turn spoiled the products of the acquired company over time.

    HP spent 2.3 percent of its Revenues on R&D in 2010. For comparison, IBM spends about 6 percent of revenue on R&D each year. Oracle spent 12 percent of revenue on R&D in 2010.

    Lets analyse their biggest acquisition deals.

    Compaq (Acquired in 2002 for 25 Billion USD)
    HP bought Compaq for 25 Billion USD. HP already had its own Laptop and PC i believe and i am not sure why they were so desperate to buy Compaq.

    When you buy companies and don't spend on R&D, someone will eventually make a better product, making yours obsolete over time.

    Ever since Apple announced iPad, HP's Laptop sales have dipped drastically and HP's Compaq buy in 2002 for 25 Billion USD looks more and more a stupid decision today.

    EDS (Acquired in 2008 for 14 Billion USD)
    EDS was majorly an IT service company. It seems like HP purely bought EDS to go up the ranks in Service Industry, in-terms of Revenues (Not Profits made).

    HP already had its presence in service industry before buying EDS. If HP can't build more clients in service industry by itself, how can it expect to hold on to its client base built by acquiring EDS.

    If EDS clients don't renew contracts with HP, HP will lose client base over a period of time.

    Palm (Acquired in 2010 for 1.2 Billion USD)
    HP acquired Palm with an intention to get into smart phones and the iPad industry.

    They were blown away by Apple's iPad and were forced to shutdown operations within 2 years.

    Conclusion:
    HP has spent extravagantly, buying companies in the last 15 years. And to make the acquisition even more worse, they spend too little on R&D, leaving the race wide open to its competitors.

    Solution:
    HP just needs to reverse two of its biggest mistakes in the last 15 years.
    • Spend as little as possible on Acquisitions. Dont acquire just for the sake of acquiring something.
    • Spend more on R&D and focus on in-house Innovations.

    PS: I really feel bad for all employees of HP and these are questions, that every employee needs to ask their management, to kick some sense up the ladder.





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