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Compaq Computer Corporation

Compaq Computer Corporation

20555 State Highway 249
Houston, Texas 77070
U.S.A.
(281) 370-0670
(800) 231-0900
Fax:
(281) 374-1740
Web site: http://www.compaq.com

Public Company
Incorporated:
1982
Employees: 32,565
Sales: $24.58 billion (1997)
Stock Exchanges: New York
Ticker Symbol: CPQ
SICs: 3571 Electronic Computers; 3577 Computer Peripheral Equipment, Not Elsewhere Classified; 7372 Prepackaged Software; 7373 Computer Integrated Systems Design

Compaq Computer Corporation is the worlds largest supplier of personal computers and, as a result of its acquisition of Digital Equipment Corporation in June 1998, is the second largest computer firm in the world (trailing only IBM). In addition to designing, developing, manufacturing, and marketing portables, laptops, desktops, workstations, and servers for businesses and consumers, the company also develops and markets computer hardware, software, solutions, and services. Compaq products are marketed in more than 100 countries worldwide.

Beginnings: Making IBM Clones

When International Business Machines Corporation (IBM) introduced its first personal computer (PC) in 1982, Compaq was among dozens of other companies entering the market with IBM clonescomputers that look and perform like IBM PCs, and are often less expensive. Compaq set itself apart from other clone manufacturers by becoming an innovator itself, producing IBM-compatible PCs that were faster, superior in quality, and offered additional user features. Compaqs management team also set the company apart from others in the PC industry. Made up of seasoned professionals from Texas Instruments (TI) and IBM, the teams prior experience in the volatile computer industry gave Compaq the tools necessary to survive a period of phenomenal growth in 1983. Compaqs staff also had the technical and business grounding to establish new industry standards on its ownwithout following IBM.

Compaqs beginning was in the summer of 1981, when Joseph R. Rod Canion, James M. Harris, and William H. Murto, three senior managers from TI, decided to start their own company. They had not yet determined what their company would produce and market; managing a Mexican restaurant or manufacturing storage devices for minicomputers or beeping devices for finding misplaced items were among their original ideas. The entrepreneurs eventually decided to build a portable PC that met industry standards set by IBM. With only $1,000 each to invest in their company, Canion, Harris, and Murto approached Ben Rosen, president of Sevin-Rosen Partners, a high-technology venture capital firm in Houston. Rosen, who became Compaqs chairman, offered an initial investment of $2.5 million.

Compaq was established just after an era in which PC entrepreneurs had proliferated. The technological breakthrough of the microprocessoran extraordinarily powerful semiconductor chipenabled smaller computers to be built that were also faster, less expensive, and easier to use. Because this much less expensive microprocessor served to miniaturize computers, the demand for PCs increased, and development costs decreased significantly. As a result, many new PC companies were established. While these early companies were successful in technological leadership and often had a flair for marketing, deficiencies in inventory management and quality control eventually led many of them to fail. When Compaq arrived on the scene, venture capitalists were beginning to force many entrepreneurs to turn over control of their companies to more experienced management professionals. As Rosenwho had lost a $400,000 investment in another PC start-upexplained in Management Today in 1985, In the early days, it was an area for flamboyant people... who transformed their personalities into companies. Now the business requires a very different kind of manager. It has become a very unforgiving industry.

Unlike most new PC companies, Compaqs management had the benefit of the experience of longtime professionals. Prior to joining Compaq, each of its original 20 employees had worked in the computer industry for 15 to 20 years. Their experience in management and engineering at such companies as TI and IBMtwo pioneers in the industryprovided Compaq with a solid foundation. Compaqs management style was of the kind that was scorned by early iconoclastic PC entrepreneurs. Compaq made decisions by a consensus approach, which allowed every division of the company a say in product development. Compaq also instituted some traditional corporate mechanisms, such as tight fiscal controls and a forecasting system.

In 1983 Compaqs consensus management proved valuable. Canion, Compaqs chief executive officer, strongly supported the idea of producing a briefcase-size, or laptop, computer. The marketing research director, however, concluded that the market for such a computer did not exist. Canion relented, and Compaq waited while other companies, including Gavilán Computer Corporation and Data General Corporation, attempted to market such a product and failed. Meanwhile, Compaq shipped its first two products, the Compaq Portable and the Compaq Plus. These computers set the standard for portablethough larger than a briefcasefull-function PCs. In 1983 Compaq shipped more than 53,000 portable PCs throughout the United States and Canada. That year, the Compaq workforce grew from 100 to 600, and production increased from 200 machines in January to 9,000 in December. The company recorded $111.2 million in revenues, the most successful first year of sales for a U.S. company.

A key factor in Compaqs growth was a strong cooperative relationship with its dealers. With nearly 90 PCs on the market aimed at business professionals, shelf space was very competitive. Compaq did not have a direct sales force of its own, and thus did not compete with its authorized dealers. This arrangement gave dealers more incentive to carry Compaq computers. Compaq also motivated its authorized dealers through what was called Salespaq, whereby Compaq paid a percentage of the dealers cost of advertising, sales training, or incentives.

Compaqs ability to develop, produce, and market new products in a very short time period was another key ingredient in its success. Once a product was approved, Compaq undertook all aspects of its development simultaneously: factories were built, marketing and distribution arrangements were made, and engineers refined the product design. The product cycle in the PC industry was typically 12 to 18 months; Compaq delivered in six to nine months. This fast turnaround in product development enabled Compaq to introduce the latest technology before its competitors. In 1984, for example, IBM announced a new version of its PC that experts felt would set back other PC manufacturers. Compaq pulled its resources from every branch of the company, and within six months introduced and shipped its DESKPRO line of desktop PCs. Fifteen months later IBM shipped its portable PC, which was two pounds heavier and offered fewer features than Compaqs portable model. From the first quarter of 1983 to the last quarter of 1984, Compaqs production increased from 2,200 computers to 48,000. Despite the 1984 industry shakeout, Compaq reported an increase in sales to over $500 million. In March 1985 Rosens original investment of $2.5 million increased in value to $30 million.

The Late 1980s: New Products and Markets

Expediency in product development also led to a turning point in Compaqs history. In 1985 Intel, a leading manufacturer of microprocessors, wanted to market its powerful new microprocessor, the 80386, as soon as possible. Intel felt confident that a Compaq product based on the new microprocessor would see a quick entry into the market. Compaq and Intel worked together to correct defects in the 80386 microprocessor, and Intel redesigned many features of the chip to meet Compaqs standards. Their collaboration resulted in Compaqs 1987 introduction of the DESKPRO 386. Based on Intels new chip, this new PC performed over three times faster than IBMs fastest PC, and nearly twice as fast as Compaqs closest competitor. It took IBM nine months to introduce a comparable machine using Intels 80386. By then Compaq was developing a portable version of its new PC.

In 1986 Compaq became the first company to achieve Fortune 500 status in fewer than four years. From 1986 through 1989, Compaqs revenues increased fivefold to $3 billion, while other PC manufacturersincluding Apple Computer and Sun Microsystems, the two top contendershad setbacks. Much of this growth was due to Compaqs successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TIs European consumer electronics operation, Compaq began its European campaign in 1984, before most other U.S. vendors. In 1989 Compaq became the number two supplier of business PCs to the European market, achieving $1.3 billion in international sales. With the PC market in Europe growing about 33 percent faster than the U.S. market, Compaq had an edge on other PC manufacturers.

Company Perspectives:

Compaq has become one of the worlds most successful companies and today leads the computer industry in market share performance and balance sheet strength. Weve achieved this by consistently executing our strategic plans, delivering on our promises and striving to provide customers with the highest levels of innovation and flexibility at the lowest total cost of ownership. By continuing to do so, we believe that we will strengthen our capability to lead the future of computing.

In November 1989 Compaq introduced the Compaq SYSTEMPRO personal computer and the Compaq DESKPRO 486. These PCs utilized a technology known as Extended Industry Standard Architecture (EISA), a hardware design that Compaq developed to challenge IBMs MicroChannel hardware design for its PS/2 PCs. These technologies increased the speed of PCs, enabling them to perform such complex operations as networking and multitasking. An added advantage of EISA was its ability to attract customers accustomed to using more powerful minicomputers and mainframe computers. By incorporating EISA into its new products, Compaq began to set industry standards. While IBM was producing computers based on the MicroChannel technology, many other manufacturers were using EISA technology. Initial sales of the SYSTEMPRO were slow but, as CEO Canion told a Business Week correspondent, We realized we were opening up a whole new market.... We knew it would take some time.

Company sales for 1990 reached $3.6 billion, with net income of $455 million, record figures for the eighth consecutive year. During that year, Compaq lengthened the list of countries in which it operated, opening new subsidiaries in Austria, Finland, and Hong Kong, and authorizing dealers in the former East Germany, Hungary, Yugoslavia, Argentina, Mexico, and Trinidad. International sales accounted for over half of Compaqs total revenue in 1990, eclipsing North American sales for the first time. Nine new products were introduced during that year. These included updated versions of the DESKPRO 386 desktop PC and a high-performance notebook PC, the Compaq LTE 386s/20. By the end of 1990, Compaq had 3,872 authorized dealers throughout the world, over 2,000 of them in North America.

1991 Brings a Slump

However, Compaq slumped badly in 1991. For reasons ranging from economic recession and price competition to problems with the flow of distribution, Compaqs sales and earnings fell for the first time in the companys history. Once again, the DESKPRO 386 PC series was the bestseller, with desktop PCs accounting for close to three-fourths of Compaqs total revenue. In September 1991, a new line of Compaq computers was introduced that had a new feature known as Intelligent Modularity. This system, the DESKPRO/M, enabled users to more readily upgrade key components as their needs and the available technology changed. This was possible by organizing components into five easy-to-access modules: memory, input/output, EISA/ISA expansion cards, processor, and video graphics controller. It was hoped that customers would prefer upgrading with ease to purchasing a new computer every time their needs increased.

Compaq was forced to alter its established distribution strategy somewhat in 1991. By that time eight of the companys ten most important dealer chains had merged into four. This led Compaq to gradually start authorizing computer consultants and discount chains to sell its products. Direct sales techniques of its own, such as a toll-free hotline, were stepped up as well.

In late 1991, a dramatic management shake-up took place. Following a gloomy board meeting at which a $70 million third-quarter loss was announced, company founder and CEO Canion was forced to resign. Pfeiffer, who had been promoted to executive vice-president and chief operating officer, was immediately named to replace Canion. A major reorganization of the corporate structure ensued. The company was realigned into desktop and systems divisions. As part of a 1,440-person staff reduction program, about 12 percent of the companys entire work force was laid off. In addition, five high-ranking executives left the organization, including senior vice-president of engineering James C. Harris, the last remaining company founder.

In June 1992 Compaq introduced an incredible total of 16 new products. The new machines were of several types, including the companys first low-cost desktop PCs (COMPAQ Pro-Linea), low-cost notebook PCs (Contura), and upgradeable desktop PCs with advanced graphics and audio capabilities. The same month, Compaq announced the initiation of a new Peripherals Division, a worldwide arm whose mission would be to develop printers and printer-related items. The divisions initial line of products, including the August 1992 debut of the Compaq Pagem printer, launched Compaq into the rapidly growing market for network printers. The printer line was a failure, however, and was abandoned in 1993.

Presario Leads a Consumer Push In the Mid-1990s

Under the leadership of Eckhardt, Compaq also began a major push into the consumer and home office markets. This effort was centered around the Presario line of home computers launched in August 1993. The companys hottest new PC in company history, the Presario line included models selling for less than $1,500; Compaq sold more than 100,000 Presarios in the first 60 days after introduction, with sales fueled by a $12 million television advertising blitz, the companys first such campaign in three years. In 1993 alone, Compaq sold $500 million worth of Presarios. By aggressively pricing its PCs, Compaq placed itself in a better position from which to compete with manufacturers of lower-cost PC equipment, manufacturers that had helped put the brakes on Compaqs previously unchecked growth. By 1994 the company managed not only to fend off its low-price competitors, it also surpassed IBM as the number one seller of PCs worldwide.

Not content with its PC dominance, Compaq in the mid-1990s aimed to capture a much wider market. It had already introduced the Proliant server PCs as its entry into the market for servers (powerful computers used for corporate networks and Internet web sites). The company then went after the corporate mainframe and minicomputer market with the launch of the Armada mainframe-class server, the top-of-the-line model which sold for upwards of $100,000. On the lower-end server front, in 1994 Compaq launched the ProSignia VS server, which cost only about five to ten percent more than a desktop PC.

Also in 1994 Compaq revamped its logistics system in order to begin building its PCs to order from a huge stockpile of parts. Previously Compaq had estimated how many units of each product it wanted in its inventory and then had that number built. Under this build-to-inventory system the company risked making too many of a particular product and being stuck with excess, unwanted inventory, as well as not having enough of a particularly hot product on hand. With its build-to-order system Compaq would realize significant inventory and manufacturing cost savings.

Other Compaq initiatives of this period included moves into high-speed networking equipment and Internet services/products, as well as the October 1996 launch of a highly successful line of engineering workstations. The highly aggressive Compaq thereby realized astounding growth: revenues increased from $5.79 billion in 1992 to $20.01 billion in 1996; net income, which had peaked in 1990 at $577 million, registered at $988 million in 1994, $893 million in 1995, and $1.32 billion in 1996. Reflecting its wider range of products, Compaq generated about 15 percent of its revenues from the consumer PC market, 48 percent from corporate desktop PCs, and 35 percent from servers and workstations in 1997.

Acquisitions in the Late 1990s

In February 1997 Compaq released a $999 PC, the Presario 2000, in another aggressive, low-price move aimed at attracting the 60 percent of U.S. households without a PC. Later in 1997 the company made two significant acquisitions. In August Compaq acquired, through a stock-for-stock transaction valued at about $4 billion, Tandem Computers Incorporated, a leader in fail-safe high-end servers with annual sales of $2 billion and a sales force 4,000 strong. Compaq also spent $280 million for Microcom, Inc., a provider of devices for remote access to networks.

Moreover, Compaq had its eye on an even bigger deal. In June 1998 the company completed its $9.1 billion acquisition of Digital Equipment Corporation, the number four computer maker in the United States. Digital, which became a subsidiary of Compaq, was a leading maker of high-end workstations and servers, giving Compaq an even greater presence in those markets. Digital also brought to Compaq a 22,000-person service operation for large companiescomputer services having been one of Compaqs weakest areas. The deal not only increased Compaqs annual revenues to more than $37 billion and vaulted the company into the number two position among all the computer firms in the world (behind only $78.5 million-in-revenues IBM), it also positioned Compaq as one of the world leaders in just about every computer sector. The company was number one worldwide in desktop computers, number three in portable computers, number three in workstations, number one in both PC servers (costing less than $25,000) and entry servers (less than $100,000), and number six in midrange servers ($100,000 to $1 million). In computer services, Compaq was suddenly number three, behind IBM and EDS.

Integrating the operations of Compaq and Digital was sure to be difficult and costly. Compaq took a $3.6 billion charge against earnings in 1998 related to the acquisition and announced plans to cut 15,000 Digital jobs and 2,000 at Compaq. Areas of overlap began to be addressed, such as the folding of Digitals PC production into that of Compaq and the scaling back of Compaqs network equipment unit. However, it would take some time before the full impact of this combinationat the time the largest merger in the relatively short history of computerscould be assessed.

Principal Subsidiaries

Digital Equipment Corporation; Microcom, Inc.; Tandem Computers Incorporated; Compaq Computer Australia Pty. Limited; Compaq Computer GesmbH (Austria); Compaq Computer N.V./S.A. (Belgium); Compaq Canada Inc.; Compaq Computer A/S (Denmark); Compaq Computer OY (Finland); Compaq Computer S.A.R.L. (France); Compaq Computer GmbH (Germany); Compaq Computer Hong Kong Limited; Compaq Computer S.p.A. (Italy); Compaq K.K. (Japan); Compaq Computer B.V. (Netherlands); Compaq Computer New Zealand Limited; Compaq Computer Norway A.S.; Compaq Computer Asia Pte. Ltd. (Singapore); Compaq Computer S.A. (Spain); Compaq Computer AB (Sweden); Compaq Computer AG (Switzerland); Compaq Computer Taiwan Limited; Compaq Computer Limited (U.K.).

Further Reading

Arnst, Catherine, et. al, Compaq: How It Made Its Impressive Move Out of the Doldrums, Business Week, November 2, 1992, pp. 146+.

Bank, David, and Leslie Cauley, Microsoft, Compaq Make Net-Access Bet, Wall Street Journal, June 16, 1998, pp. A3, A8.

Burrows, Peter, Compaq Stretches for the Crown, Business Week, July 11, 1994, pp. 14042.

_______, Where Compaqs Kingdom Is Weak, Business Week, May 8, 1995, pp. 98, 102.

Compaqs Compact, Management Today, May 1985.

Depke, Deidre A., A Comeback at Compaq?, Business Week, September 23, 1991.

Gannes, Stuart, Americas Fastest-Growing Companies, Fortune, May 23, 1988.

Heller, Robert, The Compaq Comeback, Management Today, December 1994, pp. 6670.

Kirkpatrick, David, Fast Times at Compaq, Fortune, April 1, 1996, pp. 120 +.

_______, The Revolution at Compaq Computer, Fortune, December 14, 1992, pp. 80 +.

Kotkin, Joel, The Hottest Entrepreneur in America Is... the Smart Team at Compaq Computer, Inc., February 1986.

Loeb, Marshall, Leadership Lostand Regained, Fortune, April 17, 1995, pp. 217+.

Losee, Stephanie, How Compaq Keeps the Magic Going, Fortune, February 21, 1994, pp. 90+.

McWilliams, Gary, Compaq at the Crossroads, Business Week, July 22, 1996, pp. 7072.

_______, Compaq-Digital: Let the Slimming Begin, Business Week, June 22, 1998, p. 44.

_______, Compaq: Theres No End to Its Drive, Business Week, February 17, 1997, pp. 72, 74.

_______, Mimicking Dell, Compaq to Sell Its PCs Directly, Wall Street Journal, November 11, 1998, pp. Bl, B4.

McWilliams, Gary, et. al., Power Play: How the Compaq-Digital Deal Will Reshape the Entire World of Computers, Business Week, February 9, 1998, pp. 9094, 9697.

Nee, Eric, Compaq Computer Corp., Forbes, January 12, 1998, pp. 90 +.

Palmer, Jay, Still Shining: Growth in PC Demand Abroad, Networking Make Compaqs Prospects Bright, Barrons, December 11, 1995, pp. 1516.

Pitta, Julie, Identity Crisis, Forbes, May 25, 1992.

Ramstad, Evan, Compaqs CEO Takes Tricky Curves at High Speed, Wall Street Journal, January 5, 1998, p. B4.

Ramstad, Evan, and Jon G. Auerbach, Compaq Buys Digital, an Unthinkable Event Just a Few Years Ago, Wall Street Journal, January 27, 1998, pp. Al, A14.

Uttal, Bro, Compaq Bids for PC Leadership, Fortune, September 29, 1986.

Ward, Judy, The Endless Wave: Eckhard Pfeiffer Has Turned Compaq AroundOnly to Face New Competition, Financial World, July 4, 1995, pp. 3235.

Webber, Alan M., Consensus, Continuity, and Commonsense: An Interview with Compaqs Rod Canion, Harvard Business Review, July/August 1990.

Whiting, Rick, Compaq Stays the Course, Electronic Business, October 20, 1989.

Zipper, Stuart, CompaqLife After Canion?, Electronic News, November 4, 1991.

Lynn Hall and Robert R. Jacobson
updated by David E. Salamie

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Compaq Computer Corporation

Compaq Computer Corporation

20555 SH 249
Houston, Texas 77070
U.S.A.
(713) 370-0670
Fax: (713) 374-1740

Public Company
Incorporated:
1982
Employees: 10,000
Sales: $3.27 billion
Stock Exchanges: New York

Compaq Computer Corporation is a leader in the design, development, manufacture, and marketing of portable, desktop, laptop, and personal computer systems for business and professional users. Since its founding in Houston in 1982, the company has set many United States business records. In its first full year of operation, for example, Compaq reached $111.2 million in revenues, the most successful first year of sales for a United States company. In 1986 Compaq was the first company to achieve Fortune 500 status in fewer than four years.

When International Business Machines Corporation (IBM) introduced its first personal computer (PC) in 1982, Compaq was among dozens of other companies entering the market with IBM look-alikescomputers that look and perform like IBM PCs, but are less expensive. Compaq set itself apart from other look-alike manufacturers by becoming an innovator itself, producing IBM-compatible PCs that were faster, superior in quality, and offered additional user features. Compaqs management team also set the company apart from others in the PC industry. Made up of seasoned professionals from Texas Instruments (TI) and IBM, their prior experience in the volatile computer industry gave Compaq the tools necessary to survive through a period of phenomenal growth in 1983. Compaqs staff also had the technical and business grounding to establish new industry standards on its ownwithout following IBM.

Compaqs beginning was in the summer of 1981, when Joseph R. Rod Canion, James M. Harris, and William H. Murto, three senior managers from TI, decided to start their own company. They had not yet determined what their company would produce and market; managing a Mexican restaurant or manufacturing storage devices for minicomputers or beeping devices for finding misplaced items were among their original ideas. The entrepreneurs eventually decided to build a portable PC that met industry standards set by IBM. With only $1,000 each to invest in their company, Canion, Harris, and Murto approached Ben Rosen, president of Sevin-Rosen Partners, a high-technology venture capital firm in Houston. Rosen, who became Compaqs chairman, offered an initial investment of $2.5 million.

Compaq was established just after an era in which PC entrepreneurs had proliferated. The technological breakthrough of the microprocessoran extraordinarily powerful semiconductor chipenabled smaller computers to be built that were also faster, less expensive, and easier to use. Because the much-less-expensive microprocessor miniaturized computers, the demand for PCs increased, and development costs decreased significantly. As a result, many PC companies were established. While these early companies were successful in technological leadership and had a flair for marketing, deficiencies in inventory management and quality control eventually led many of them to fail. When Compaq arrived on the scene, venture capitalists were beginning to force many entrepreneurs to turn over control of their companies to more experienced management professionals. As Rosenwho had lost a $400,000 investment in another PC start-upexplained in Management Today in 1985, In the early days, it was an area for flamboyant people ... who transformed their personalities into companies. Now the business requires a very different kind of manager. It has become a very unforgiving industry.

Unlike most new PC companies, Compaqs management had the benefit of the experience of longtime professionals. Prior to joining Compaq, each of its original 20 employees had worked in the computer industry for 15 to 20 years. Their experience in management and engineering at such companies as TI and IBMtwo pioneers in the industry provided Compaq with a solid foundation. Compaqs management style was of the kind that was scorned by early iconoclastic PC entrepreneurs. Compaq made decisions by a consensus approach, which allowed every division of the company a say in product development. Compaq also instituted some traditional corporate mechanisms, such as tight fiscal controls and a forecasting system.

In 1983, Compaqs consensus management proved valuable. Canion, Compaqs chief executive officer, strongly supported the idea of producing a briefcase-size, or laptop, computer. The marketing research director, however, concluded that the market for such a computer did not exist. Canion relented and Compaq waited while other companies, including Gavilan Computer Corporation and Data General Corporation, attempted to market such a product and failed. Meanwhile, Compaq shipped its first two products, the Compaq Portable and the Compaq Plus. These computers set the standard for portablethough larger than a briefcasefull-function PCs. In 1983 Compaq shipped more than 53,000 portable PCs throughout the United States and Canada. That year, Compaq grew from 100 to 600 people, and production increased from 200 machines in January to 9,000 in December.

A key factor in Compaqs growth was a strong cooperative relationship with its dealers. With nearly 90 PCs on the market aimed at business professionals, shelf space was very competitive. Compaq did not have a direct sales force of its own, and thus did not compete with its authorized dealers. This arrangement gave dealers more incentive to carry Compaq computers. Compaq also motivated its authorized dealers through what was called Salespaq, whereby Compaq paid a percentage of the dealers cost of advertising, sales training, or incentives.

Compaqs ability to develop, produce, and market new products in a very short time period was another key ingredient in its success. Once a product was approved, Compaq undertook all aspects of its development simultaneously: factories were built, marketing and distribution arrangements were made, and engineers refined the product design. The product cycle in the PC industry is typically 12 to 18 months; Compaq delivered in 6 to 9 months. This fast turnaround in product development enabled Compaq to introduce the latest technology before its competitors. In 1984, for example, IBM announced a new version of its PC that experts felt would set back other PC manufacturers. Compaq pulled its resources from every branch of the company, and within six months introduced and shipped its DESKPRO line of desktop PCs. Fifteen months later IBM shipped its portable PC, which was two pounds heavier and offered fewer features than Compaqs portable model. From the first quarter of 1983 to the last quarter of 1984, Compaqs production increased from 2,200 computers to 48,000. Despite the 1984 industry shake-out, Compaq reported an increase in sales to over $.5 billion. In March 1985 Rosens original investment of $2.5 million increased in value to $30 million.

Expediency in product development also led to a turning point in Compaqs history. In 1985 Intel, a leading manufacturer of microprocessors, wanted to market its powerful new microprocessor, the 80386, as soon as possible. Intel felt confident that a Compaq product based on the new microprocessor would see a quick entry into the market. Compaq and Intel worked together to correct defects in the 80386 microprocessor, and Intel redesigned many features of the chip to meet Compaqs standards. Their collaboration resulted in Compaqs 1987 introduction of the DESKPRO 386. Based on Intels new chip, this new PC performed over three times faster than IBMs fastest PC, and nearly twice as fast as Compaqs closest competitor. It took IBM nine months to introduce a comparable machine using Intels 80386. By then Compaq was developing a portable version of its new PC.

From 1986 through 1989, Compaqs revenues increased fivefold to $3 billion, while other PC manufacturersincluding Apple Computer and Sun Microsystems, the two top contendershad setbacks. Much of this growth was due to Compaqs successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TIs European consumer-electronics operation, Compaq began its European campaign in 1984, before most other United States vendors. In 1989 Compaq became the number-two supplier of business PCs to the European market, achieving $1.3 billion in international sales. With the PC market in Europe growing one-third faster than the United States market, Compaq had an edge on other PC manufacturers.

In November of 1989 Compaq introduced the Compaq SYSTEMPRO personal computer and the Compaq DESK-PRO 486. These PCs utilized a technology known as Extended Industry Standard Architecture (EISA), a hardware design that Compaq developed to challenge IBMs Microchannel hardware design for its PS/2 PCs. These technologies increased the speed of PCs, enabling them to perform such complex operations as networking and multitasking. An added advantage of EISA was its ability to attract customers accustomed to using more powerful minicomputers and mainframe computers. By incorporating EISA into its new products, Compaq began to set industry standards. While IBM was producing computers based on the Microchannel technology, many other manufacturers were using EISA technology. Initial sales of the SYSTEMPRO were slow but, as chief executive officer Canion told a Business Week correspondent, We realized we were opening up a whole new market. ... We knew it would take some time.

Company sales for 1990 reached $3.6 billion, with net income of $455 million, record figures for the eighth consecutive year. During that year, Compaq lengthened the list of countries in which it operated, opening new subsidiaries in Austria, Finland, and Hong Kong, and authorizing dealers in the former East Germany, Hungary, Yugoslavia, Argentina, Mexico, and Trinidad. International sales accounted for over half of Compaqs total revenue in 1990, eclipsing North American sales for the first time. Nine new products were introduced during that year. These included updated versions of the DESKPRO 386 desktop PC and a high-performance notebook PC, the Compaq LTE 386s/20. By the end of 1990, Compaq had 3,872 authorized dealers throughout the world, over 2,000 of them in North America.

Compaq slumped badly in 1991. For reasons ranging from the recession to price competition to problems with the flow of distribution, Compaqs sales and earnings fell for the first time in the companys history. Once again, the DESK-PRO 386 PC series was the best-seller, with desktop PCs accounting for close to three-quarters of Compaqs total revenue. A new line of computers was introduced in September 1991 that had a new feature called Intelligent Modularity. This system, the DESKPRO/M, enabled users to more readily upgrade key components as their needs and the available technology changed. This was possible by organizing components into five easy-to-access modules: memory, input/output, EISA/ISA expansion cards, processor, and video graphics controller. It was hoped that customers would prefer upgrading with ease to purchasing a new computer every time their needs increased.

Compaq was forced to alter its established distribution strategy somewhat in 1991. By that time eight of the companys ten most important dealer chains had merged into four. This led Compaq to gradually start authorizing computer consultants and discount chains to sell its products. Direct sales techniques of its own, such as a toll-free hotline, were stepped up as well.

In late 1991, a dramatic management shake-up took place. Following a gloomy board meeting at which a $70 million third-quarter loss was announced, company founder and chief executive officer Canion was forced to resign. Eckhard Pfeiffer, executive vice president and chief operating officer, was immediately named to replace Canion. A major reorganization of the corporate structure ensued. The company was realigned into desktop and systems divisions. As part of a 1,440-person staff reduction program, about 12 percent of the companys entire workforce was laid off. In addition, five high-ranking executives left the organization, including senior vice president of engineering James C. Harris, the last remaining company founder.

In June 1992 Compaq introduced an incredible total of 16 new products. The new machines were of several types, including the companys first low-cost desktop PCs (COMPAQ ProLinea), low-cost notebook PCs (Contura), and upgradable desktop PCs with advanced graphics and audio capabilities. The same month, Compaq announced the initiation of a new Peripherals Division, a worldwide arm whose mission would be to develop printers and printer-related items. The divisions initial line of products will launch Compaq into the rapidly growing market for network printers. Also, company officials believed that more aggressive pricing tactics would put Compaq in a better position from which to compete with manufacturers of lower-cost PC equipment, manufacturers that had helped put the brakes on Compaqs previously unchecked growth. The companys sales for the quarter ending June 30, 1992, were $827 million, 15 percent higher than the figure for the corresponding quarter in 1991. Net income was $29 million for the quarter, a 43 percent increase over the previous years quarter ending in June.

Compaqs entry into the PC market on the heels of IBM gave it a market in which to grow. Its dedication to innovation within industry standards set by IBM is what enabled Compaq to surpass others in the IBM look-alike industry and compete with IBM head-to-head, something that will likely continue as they both enter the minicomputer and workstation markets. Compaqs unique relationship with its authorized dealers, its experienced management team, and its ability to turn out a new product more quickly than any other vendor in the industry have made this company one of the fastest-growing in the history of American business. Whether Compaq can return to even a modest type of growth will depend largely upon its ability to compete in a field with more and more players whose skills are continually increasing.

Principal Subsidiaries

Compaq Computer Australia Pty. Limited; Compaq Computer GesmbH (Austria); Compaq Computer N.V./S.A. (Belgium); Compaq Canada Inc.; Compaq Computer A/S (Denmark); Compaq Computer S.A.R.L. (France); Compaq Computer GmbH (Germany); Compaq Computer Hong Kong Limited; Compaq Computer S.p.A. (Italy); Compaq Computer B.V. (Netherlands); Compaq Computer New Zealand Limited; Compaq Computer Norway A.S.; Compaq Computer Asia Pte. Ltd. (Singapore); Compaq Computer S.A. (Spain); Compaq Computer AB (Sweden); Compaq Computer AG (Switzerland); Compaq Computer OY (Finland); Compaq Computer Limited (U.K.).

Further Reading

Compaqs Compact, Management Today, May 1985; Kotkin, Joel, The Hottest Entrepreneur in America is ... the Smart Team at Compaq Computer, Inc., February 1986; Uttal, Bro, Compaq Bids for PC Leadership, Fortune, September 29, 1986; Cannes, Stuart, Americas Fastest-Growing Companies, Fortune, May 23, 1988; Whiting, Rick, Compaq Stays the Course, Electronic Business, October 20, 1989; Webber, Alan M., Consensus, Continuity, and Commonsense: An Interview With Compaqs Rod Canion, Harvard Business Review, July/August 1990; Depke, Deidre A., A Comeback at Compaq?, Business Week, September 23, 1991; Zipper, Stuart, CompaqLife After Canion?, Electronic News, November 4, 1991; Pitta, Julie, Identity Crisis, Forbes, May 25, 1992.

Lynn Hall

updated by Robert R. Jacobson

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Compaq Computer Corporation

Compaq Computer Corporation

20555 SH 249
Houston, Texas 77070
U.S.A.
(713) 370-0670
Fax: (713) 374-1740

Public Company
Incorporated: 1982
Employees: 10,000
Sales: $2.88 billion
Stock Exchange: New York

Compaq Computer Corporation is a leader in the design, development, manufacture, and marketing of portable, desktop, laptop, and personal computer systems for business and professional users. Since its February 1982 founding in Houston, this company has set many U.S. business records. In its first full year of operation, for example, Compaq reached $111.2 million in revenues, the most successful first year of sales for a U.S. company. In 1986 Compaq was the first company to achieve Fortune 500 status in fewer than four years.

When International Business Machines Corporation (IBM) introduced its first personal computer (PC) in 1982, Compaq was among dozens of other companies entering the market with IBM look-alikescomputers which look and perform like IBM PCs, but are less expensive. Compaq set itself apart from other look-alike manufacturers by becoming an innovator itself, producing IBM-compatible PCs that are faster, superior in quality, and offer additional user features. Compaqs management team also set the company apart from others in the PC industry. Made up of seasoned professionals from Texas Instruments (TI) and IBM, their prior experience in the volatile computer industry gave Compaq the tools necessary to survive through a phenomenal growth period in 1983. Compaqs staff also had the technical and business grounding to establish new industry standards on its ownwithout following IBM.

Compaqs beginning was in the summer of 1981, when Joseph R. Rod Canion, James M. Harris, and William H. Murto, three senior managers from TI, decided to start their own company. They had not yet determined what their company would produce and market; managing a Mexican restaurant or manufacturing storage devices for minicomputers or beeping devices for finding misplaced items were among their original ideas. The entrepreneurs eventually decided to build a portable PC that met industry standards set by IBM. With only $1,000 each to invest in their company, Canion, Harris, and Murto approached Ben Rosen, president of Sevin-Rosen Partners, a high-technology venture capital firm in Houston. Rosen, who is Compaqs chairman, offered an initial investment of $2.5 million.

Compaq was established just after an era in which PC entrepreneurs had proliferated. The technological breakthrough of the microprocessoran extraordinarily powerful semiconductor chipenabled smaller computers to be built which were also faster, less expensive, and easier to use. Because the much-less-expensive microprocessor miniaturized computers, the demand for PCs increased, and development costs decreased significantly. As a result, many PC companies were established. While these early companies were successful in technological leadership and had a flair for marketing, deficiencies in inventory management and quality control eventually lead many of them to fail. When Compaq arrived on the scene, venture capitalists were beginning to force many entrepreneurs to turn control over their companies to more experienced management professionals. As Rosen who had lost a $400,000 investment in another PC start-up explained to Management Today in May 1985, In the early days, it was an area for flamboyant people... who transformed their personalities into companies. Now the business requires a very different kind of manager. It has become a very unforgiving industry.

Unlike most new PC companies, Compaqs management had the benefit of the experience of long-time professionals. Prior to joining Compaq, each of its original 20 employees had worked in the computer industry for 15 to 20 years. Their experience in management and engineering at such companies as TI and IBM, two pioneers in the industry, provided Compaq with a solid foundation. Compaqs management style is of the kind that was scorned by early iconoclastic PC entrepreneurs. Compaq makes decisions by a consensus approach to management which allows every division of the company a say in product development. Compaq also instituted some traditional corporate mechanisms, such as tight fiscal controls and a forecasting system.

In 1983, Compaqs consensus management proved valuable. Canion, Compaqs CEO, strongly supported the idea of producing a briefcase-size, or laptop, computer. The marketing research director, however, concluded that the market for such a computer did not exist. Canion relented and Compaq waited while other companiessuch as Gavilan Computer Corporation and Data General Corporationattempted to market such a product and failed. Meanwhile, Compaq shipped its first two products, the Compaq Portable and the Compaq Plus. These computers set the standard for fullfunction portable PCs. In 1983 Compaq shipped more than 53,000 portable PCswhich were larger than a briefcase throughout the United States and Canada. That year, Compaq grew from 100 to 600 people, and production increased from 200 machines in January to 9,000 in December.

A key factor in Compaqs growth has been a strong cooperative relationship with its dealers. With nearly 90 PCs on the market aimed at business professionals, shelf space is very competitive. Compaq does not have a direct sales force of its own, and thus does not compete with its authorized dealers. This arrangement gives dealers more incentive to carry Compaq computers. Compaq also motivates its authorized dealers through what is called Salespaq, whereby Compaq pays a percentage of the dealers cost of advertising, sales training, or incentives.

Compaqs ability to develop, produce, and market new products in a very short time period is another key ingredient of its success. Once a product has been approved, Compaq undertakes all aspects of its development simultaneously: factories are built, marketing and distribution arrangements are made, and engineers refine the product design. The product cycle in the PC industry is typically 12 to 18 months; Compaq delivers in 6 to 9 months. This fast turnaround in product development enables Compaq to introduce latest technology before its competitors. In 1984, for example, IBM announced a new version of its PC, which experts felt would set back other PC manufacturers. Compaq pulled its resources from every branch of the company, and within six months introduced and shipped its Deskpro line of desktop PCs. Fifteen months later IBM shipped its portable PC, which was two pounds heavier and offered fewer features than Compaqs portable model. From the first quarter of 1983 to the last quarter in 1984, Compaqs production increased from 2,200 computers to 48,000. Despite the 1984 industry shakeout, Compaq reported an increase in sales, to over half a billion dollars. In March 1985, Rosens original investment of $2.5 million increased in value to $30 million.

Expediency in product development was also an important quality which lead to a turning point in Compaqs history. In 1985 Intel, a leading manufacturer of microprocessors, wanted to market its new powerful microprocessor, the 80386, as soon as possible. Intel felt confident that a Compaq product based on the new microprocessor would see a quick entry into the market. Compaq and Intel worked together to correct defects in the 80386 microprocessor, and Intel redesigned many features of the chip to meet Compaqs standards. Their collaboration resulted in Compaqs 1987 introduction of the Deskpro 386. Based on Intels new chip, this new PC performed over three times faster than IBMs fastest PC, and nearly twice as fast as Compaqs closest competitor. It took IBM nine months to introduce a comparable machine using Intels 80386. By then, Compaq was developing a portable version of its new PC.

From 1986 through 1989, Compaqs revenues increased fivefold to $3 billion, while other PC makersincluding Apple Computer and Sun Microsystems, the two top contendershave had setbacks. Much of this growth is due to Compaqs successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TIs European consumer-electronics operation, Compaq began its European campaign in 1984, before most other U.S. vendors. In 1989, Compaq became the number-two supplier of business PCs to the European market, achieving $1.3 billion in international sales. With the PC market in Europe growing a third faster than the U.S. market, Compaq has an edge on other PC manufacturers.

In November 1989, Compaq introduced the Compaq Systempro personal computer and the Compaq DESKPRO 486. These PCs utilize what is known as Extended Industry Standard Architecture (EISA), a hardware design that Compaq developed to challenge IBMs Microchannel hardware design for its PS/2 PCs. These technologies increase the speed of PCs, enabling them to perform more complex operations, such as networking and multitasking. EISA will take Compaq beyond the PC market and attract customers accustomed to using more powerful minicomputers and mainframe computers. By incorporating EISA into its new products, Compaq began to set industry standards. While IBM is producing computers based on the Mirochannel technology, many other manufacturers are using EISA technology. Initial sales of the Systempro were slow but, as CEO Canion told Business Week, July 2, 1990, We realized we were opening up a whole new market.... We knew it would take some time.

Compaqs entry into the PC market on the heels of IBM gave it a market in which to grow. Its dedication to innovation within industry standards set by IBM is what enabled Compaq to surpass others in the IBM look-alike industry and meet IBM head-to-head as they both enter the minicomputer and workstation markets. Compaqs unique relationship with its authorized dealers, its experienced management team, and its ability to turn out a new product more quickly than any other vendor in the industry have made this company one of the fastest-growing in the history of U.S. business.

Principal Subsidiaries

Compaq Computer Australia Pty. Limited; Compaq Computer GesmbH (Austria); Compaq Computer N.V./S.A. (Belgium); Compaq Canada Inc.; Compaq Computer A/S (Denmark); Compaq Computer S.A.R.L. (France); Compaq Computer Gmbh (Germany); Compaq Computer Hong Kong Limited; Compaq Computer S.p.A. (Italy); Compaq Computer B.V. (Netherlands); Compaq Computer New Zealand Limited; Compaq Computer Norway A.S.; Compaq Computer Asia Pte Ltd. (Singapore); Compaq Computer S.A. (Spain); Compaq Computer AB (Sweden); Compaq Computer AG (Switzerland); Compaq Computer OY (Finland); Compaq Computer Limited (U.K.).

Further Reading

Compaqs Compact, Management Today, May 1985; Kotkin, Joel, The Hottest Entrepreneur in America is... the Smart Team at Compaq Computer, Inc., February 1986; Uttal, Bro, Compaq Bids for PC Leadership, Fortune, September 29, 1986; Gannes, Stuart, Americas Fastest-Growing Companies, Fortune, May 23, 1988; Whiting, Rick, Compaq stays the course, Electronic Business, October 20, 1989; Webber, Alan M., Consensus, Continuity, and Commonsense: An Interview with Compaqs Rod Canion, Harvard Business Review, July-August 1990.

Lynn Hall

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Compaq Computer Corporation

Compaq Computer Corporation Compaq was an early and successful entrant into the personal computer market and into portables. In 1997, it bought Tandem Computers, a manufacturer of very high-reliability computers for the business market. In 1998, in the largest acquisition in the computer industry up to then, it bought the Digital Equipment Corporation. In 2002, it merged with the Hewlett-Packard Corporation.

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