Hewlett-Packard Integrated Circuits Business Division CAD Technology Acquisition (A)
In mid-September 1989, Lance Mills, manager of Hewlett Packard’s Integrated Circuits Business Division (ICBD), had to set staffing levels and priorities for future computer-aided-design (CAD) tool development. Mills was responsible for a 300-person organization chartered to do integrated circuit (IC) design and CAD tool development. Two-thirds of Mills’ staff designed ICs, such as microprocessors and ASICs that would be incorporated into HP computers and laser printers. One-third of Mills’ staff was dedicated to developing and maintaining in-house CAD software to meet the needs of all HP IC designers. Hewlett-Packard revenues were $10 billion in 1988 and were projected to reach $12 billion in 1989. ICBD products were key components in products that represented over half of HP’s total revenue. ICBD had historically been treated as a cost center—other HP divisions were forced to buy its products. As part of HP’s new corporate strategy, however, ICBD was converted into a profit/loss center in 1989. The division would have to compete for the business of other HP divisions against outside companies such as Texas Instruments and Motorola. Mills weighed the issues involved with continuing internal CAD development versus outsourcing it. Some divisions within HP were not sure that ICBD’s CAD tools were giving them an advantage and outside CAD vendors were way ahead of ICBD in CAD development. Although the factors in favor of outsourcing CAD seemed compelling, Mills considered the perils of becoming dependent on outside vendors for such important technology. He also was well aware that ICBD was now a profit/loss center and external CAD developers were experiencing tremendous growth and were optimistic about the future.