PanAmerican World Airways. CompuServe. Cyrix. Trans World Airlines.

I’m sure you’ve heard of at least one of those company names. Between the four names, there is a common underlying similarity. Those are names you do not see anymore. More specifically, those are companies that have either been bought out or merged. In a competitive market, there simply is not enough space for every company out there. A few companies either merge or are bought out to gain the competitive edge over the competition. Even a force as dominant as PanAm fell apart simply because it could not keep up.

By now, a few of you probably know where I’m going. Microprocessor giant Advanced Micro Devices (AMD) and Canadian multimedia company ATI Technologies have decided to merge under one identity. In fact, AMD pretty much bought ATI outright. In addition to this marquee headline merger, there was another recent merger that will be key for computer consumers. Motherboard companies Gigabyte and AsusTek joined together for a “strategic alliance”. While a number of analysts have made their “expert predictions” on the status of these merged identities, the best judge may be to look at past merger to see what <i>can</i> happen. For that reason, there are two past company mergers that need to be examined.

America Online, the internet services company, emerged from relative obscurity to a nationwide name. We’re all used to hearing their trademark “You’ve got mail” every time anyone logs onto AOL. After establishing itself as a force, AOL held an unrelenting dominance on internet service through much of the 1990s. Touting “internet made easy”, AOL’s appeal translated to market dominance for a relatively long period of time. Couple the power with the tremendous growth potential of the internet during the turn of the century, AOL seemed in fine shape. Likewise, the company Time Warner, perhaps best known for their cable business, was also fairly successful. Time Warner had its hands in a number of different industries, such as film and general television.  In 2001, as we may remember, the two formed a blockbuster merger worth around $166 billion. AOL, the smaller of the two companies, had in fact, acquired Time Warner. The two formed “AOL Time Warner” at the time, under a completely new identity. Analysts predicted the wide-ranging new company would have great potential to be a legitimate threat to many companies in many different industries.

That is then, this is now. Almost six years after the merger took place, hindsight became clear. A major point we have to look at is AOL’s progress…or the lack thereof. When they grew into a larger company with Time Warner, AOL assumed a number of responsibilities that were left unfulfilled. Specifically, the problematic customer support issue was exacerbated after the merger. Have you ever tried to cancel AOL accounts? It’s impossible. Have you tried uninstalling AOL from your computer? That’s also sometimes hard to do properly, considering the problematic software distributed by AOL. America Online’s performance was such a problem that “AOL Time Warner” became simply “AOL” and “Time Warner”. This combined with other problems, spelled financial decline for the new company.

AOL and Time Warner is an example of how companies from diverse backgrounds came together to form a multi-industrial company. The merger between computer giants Compaq and Hewlett-Packard is an example of how companies that are in the same industry combine to form a larger single company. Part of the reason for doing this is to form a stronger single presence while at the same time, reducing competition. “Joint venture” or “strategic alliance” are terms that are often used to describe such an alliance.

In 2001 and 2002, Hewlett-Packard CEO Carly Fiona pushed to acquire rival company, Compaq. Both Fiona and then-Compaq CEO Michael Capellas noted the consumers will benefit as a result of the merger. Many stock owners opposed the merger, causing the issue to take an ugly turn. The Federal Trade Commission approved the deal as a non-monopolistic merger, and the two companies went onto merge under the “HP” name. Professional analysts were split by the merger — while some said the merger will create increased competition against the market leader Dell, others imagined that HP and Compaq will not work well together. Years later, the same question was asked, and even then, the huge potential of the blockbuster merger remained unfulfilled. Lackluster executive organization as well as tentative moves from the company led to a sharp decrease of HP stock prices. To the consumers, there was no merit in the merger – the industry is still firmly in Dell’s hands.
 
The key to these mergers and acquisitions is to ask – what potential is there? What upside does a combined company have? That will tell you what it means to us – the consumers. AOL-Time Warner as well as Compaq-HP are two examples of mergers where whatever potential there was, it remained ultimately unfulfilled years later. The computer industry is all about potential.

And now, we ask — what about AMD and ATI? And Gigabyte and Asus? What do these mergers mean to us, the consumers?

I picked Time-Warner and AOL as a perfect example of what AMD and ATI could be. In each case, two companies are merging to create a wide-ranging identity through multiple industries. The clearest advantage is that AMD and ATI can now offer a full-platform solution as opposed to separate parts (ie. CPU, GPU, chipset, etc.). A number of expert analysts have predicted that the merger would result in increased productivity for the new giant company. That’s certainly a possibility. But with two companies concentrating in two relatively different fields, you can’t be sure. Time Warner and America Online were two relatively strong companies — yet, combined, they never really lived up to the hype or the potential that was expected of them in 2000. While looking Time Warner-AOL to ATI-AMD maybe comparing Apples to Oranges, the fact that the two companies come together to form a powerhouse company is no different.

In a fierce battle between Intel and AMD as well as nVidia and ATI, any leg up is welcomed. We should also consider AMD’s capabilities in terms of organization, planning, and strategy. Consider what AMD’s CEO Héctor Ruiz has done since taking the reigns from founder Jerry Sanders. Ruiz has taken the underdog company to new heights. He established Advanced Micro Devices as a legitimate contender to Intel with aggressive marketing and strong products for the consumer. With Ruiz’s guidance, the AMD-ATI alliance can potentially score very well for the consumers with great upside.

With Asus and Gigabyte, we should consider that both companies are already two of the top leaders in motherboard sales. By taking part in this “joint alliance”, the joint company shows great potential. Gigabyte will take 51% of the new company, which will cause almost all products from the new company to have the Gigabyte name. I always consider the key to the motherboard industry is not necessarily the cost, but great quality. Product quality will be more of an issue in this merger than product pricing. But to the consumers, I would imagine this merger to be quite insignificant in that both companies manufacturer can provide decent quality products at a decent price. Sure, HP and Compaq didn’t end up well. But remember, the Asus-Gigabyte alliance did not take the ugly turn that the computer giants did when they tried to merge. I think the organization of the alliance will end up much healthier, and I think the merger will end up successful for the companies.

Needless to say, these mergers, especially AMD-ATI, will be closely watched. In either case, though, I don’t think that the consumer loses considering that there are still healthy competitions with other large companies. I look forward to it — that’s the fun part of an open competitive market.