Question

Negative Impacts of Compaq Rapid Growth

Answer 1

Compaq emerged as the largest PC supplier during the 1990s due to its better graphics, improved performance, reliability and competitive prices of computers. However, the company came to an end in the year 2002 due to its rapid growth. Rapid growth often leads to high debt of the companies, which happened in the case of Compaq. In 2002, the company was submerged under a $2 billion of short-term debt. Its stock was trading at around $12 per share, which decreased from $51 and a market value of more than $18 billion. Then, HP acquired it completely in an all-share merger. The fall of the company began with its buying of Tandem Computers in 1997 and Digital Equipment Company in 1998, which led to the complexity in its business. The strategy of the company to dominate every department of the computer industry resulted in excess inventory and unexpected price competition, ultimately swiping away its profits. Furthermore, executives of Compaq shifted their focus from the successful selling of computers to rapid growth through diversification of business, increasing the company’s vulnerability in the long run. Without focusing on the daily operations of the business and aligning the strategies according to the changing environment, the company emphasized on accelerated growth, which ultimately led to its shorter life span.