Compaq Computer Corporation

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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-alikes—computers 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. Compaq’s 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. Compaq’s staff also had the technical and business grounding to establish new industry standards on its own—without following IBM.

Compaq’s 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 Compaq’s 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 microprocessor—an extraordinarily powerful semiconductor chip—enabled 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, Compaq’s 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. Compaq’s 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, Compaq’s consensus management proved valuable. Canion, Compaq’s 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 companies—such as 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 fullfunction portable PCs. In 1983 Compaq shipped more than 53,000 portable PCs—which 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 Compaq’s 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 dealer’s cost of advertising, sales training, or incentives.

Compaq’s 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 Compaq’s portable model. From the first quarter of 1983 to the last quarter in 1984, Compaq’s 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, Rosen’s 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 Compaq’s 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 Compaq’s standards. Their collaboration resulted in Compaq’s 1987 introduction of the Deskpro 386. Based on Intel’s new chip, this new PC performed over three times faster than IBM’s fastest PC, and nearly twice as fast as Compaq’s closest competitor. It took IBM nine months to introduce a comparable machine using Intel’s 80386. By then, Compaq was developing a portable version of its new PC.

From 1986 through 1989, Compaq’s revenues increased fivefold to $3 billion, while other PC makers—including Apple Computer and Sun Microsystems, the two top contenders—have had setbacks. Much of this growth is due to Compaq’s successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TI’s 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 IBM’s 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.”

Compaq’s 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. Compaq’s 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.).