History
Founding
Compaq was founded in February 1982 by Rod Canion, Jim Harris, and Bill Murto, three senior managers from semiconductor manufacturer Texas Instruments. The three of them had left due to lack of faith and loss of confidence in TI's management, and initially considered but ultimately decided against starting a chain of Mexican restaurants. Each invested $1,000 to form the company, which was founded with the temporary name Gateway Technology. The name "COMPAQ" was said to be derived from "Compatibility and Quality" but this explanation was an afterthought. The name was chosen from many suggested by Ogilvy & Mather, it being the name least rejected. The first Compaq PC was sketched out on a placemat by Ted Papajohn while dining with the founders in a pie shop, (named House of Pies in Houston). Their first venture capital came from Benjamin M. Rosen and Sevin Rosen Funds, who helped the fledgling company secure to produce their initial computer.Introduction of Compaq Portable
In November 1982, Compaq announced their first product, the Compaq Portable, a portableCompaq Deskpro
On June 28, 1984, Compaq released the Compaq Deskpro, a 16-bit desktop computer using an Intel 8086 microprocessor running at . It was considerably faster than an IBM PC and was, like the original Compaq Portable, also capable of running IBM software. It was Compaq's first non-portable computer and began the Deskpro line of computers.Compaq DeskPro 386
Compaq introduced the first PC based on Intel's new 80386 microprocessor, the Compaq Deskpro 386, in 1986. Bill Gates of Microsoft later said The Compaq 386 computer marked the first CPU change to the PC platform that was not initiated by IBM. An IBM-made 386 machine reached the market almost a year later, but by that time Compaq was the 386 supplier of choice and IBM had lost some of its prestige. For the first three months after announcement, the Deskpro 386 shipped with Windows/386. This was a version of Windows 2.1 adapted for the 80386 processor. Support for the virtual 8086 mode was added by Compaq engineers. (Windows, running on top of the MS-DOS operating system, would not become a popular "operating environment" until at least the release of Windows 3.0 in 1990.)Compaq SystemPro
Compaq's technical leadership and the rivalry with IBM was emphasized when the SystemPro server was launched in late 1989 – this was a true server product with standard support for a second CPU and RAID, but also the first product to feature the EISA bus, designed in reaction to IBM's MCA ( MicroChannel Architecture) which was incompatible with the original AT bus. Although Compaq had become successful by being 100 percent IBM-compatible, it decided to continue with the original AT bus—which it renamed1990s
By 1989, ''The New York Times'' wrote that being the first to release a 80386-based personal computer made Compaq the leader of the industry and "hurt no company more - in prestige as well as dollars - than" IBM. The company was so influential that observers and its executives spoke of "Compaq compatible". ''InfoWorld'' reported that "In the SA marketCompaq is already IBM's equal in being seen as a safe bet", quoting aOuster of co-founders
Michael S. Swavely, president of Compaq's North American division since May 1989, took a six-month sabbatical in January 1991 (which would eventually become retirement effective on July 12, 1991). Eckhard Pfeiffer, then president of Compaq International, was named to succeed him. Pfeiffer also received the title of chief operating officer, with responsibility for the company's operations on a worldwide basis, so that Canion could devote more time to strategy. Swavely's abrupt departure in January led to rumors of turmoil in Compaq's executive suite, including friction between Canion and Swavely, likely as Swavely's rival Pfeiffer had received the number two leadership position. Swavely's U.S. marketing organization was losing ground with only 4% growth for Compaq versus 7% in the market, likely due to short supplies of the LTE 386s from component shortages, rivals that undercut Compaq's prices by as much as 35%, and large customers who did not like Compaq's dealer-only policy." Pfeiffer became president and CEO of Compaq later that year, as a result of a boardroom coup led by board chairman Ben Rosen that forced co-founder Rod Canion to resign as president and CEO. Pfeiffer had joined Compaq from Texas Instruments, and established operations from scratch in both Europe and Asia. Pfeiffer was given US$20,000 to start up Compaq Europe He started up Compaq's first overseas office in Munich in 1984. By 1990, Compaq Europe was a $2 billion business and number two behind IBM in that region, and foreign sales contributed 54 percent of Compaq's revenues. Pfeiffer, while transplanting Compaq's U.S. strategy of dealer-only distribution to Europe, was more selective in signing up dealers than Compaq had been in the U. S. such that European dealers were more qualified to handle its increasingly complex products. During the 1980s, under Canion's direction Compaq had focused on engineering, research, and quality control, producing high-end, high-performance machines with high profit margins that allowed Compaq to continue investing in engineering and next-generation technology. This strategy was successful as Compaq was considered a trusted brand, while many other IBM clones were untrusted due to being plagued by poor reliability. However, by the end of the eighties many manufacturers had improved their quality and were able to produce inexpensive PCs with off-the-shelf components, incurring none of the R&D costs which allowed them to undercut Compaq's expensive computers. Faced with lower-cost rivals such as Dell Computer, AST Research, andMarket ascension
Under Pfeiffer's tenure as chief executive, Compaq entered the retail computer market with the Compaq Presario as one of the first manufacturers in the mid-1990s to market a sub-$1000 PC. In order to maintain the prices it wanted, Compaq became the first first-tier computer manufacturer to utilize CPUs from AMD and Cyrix. The two price wars resulting from Compaq's actions ultimately drove numerous competitors from the market, such as Packard Bell and AST Research. From third place in 1993, Compaq had overtaken Apple Computer and even surpassed IBM as the top PC manufacturer in 1994, as both IBM and Apple were struggling considerably during that time. Compaq's inventory and gross margins were better than that of its rivals which enabled it to wage the price wars. Compaq had decided to make a foray into printers in 1989, and the first models were released to positive reviews in 1992. However, Pfeiffer saw that the prospects of taking on market leader Hewlett Packard (who had 60% market share) was tough, as that would force Compaq to devote more funds and people to that project than originally budgeted. Compaq ended up selling the printer business to Xerox and took a charge of $50 million. On June 26, 1995, Compaq reached an agreement withManagement shuffle
In 1996, despite record sales and profits at Compaq, Pfeiffer initiated a major management shakeup in the senior ranks. John T. Rose, who previously ran Compaq's desktop PC division, took over the corporate server business from SVP Gary Stimac who had resigned. Rose had joined Compaq in 1993 from Digital Equipment Corporation where he oversaw the personal computer division and worldwide engineering, while Stimac had been with Compaq since 1982 and was one of the longest-serving executives. Senior Vice-president for North America Ross Cooley announced his resignation effective at the end of 1996. CFO Daryl J. White, who joined the company in January, 1983 resigned in May, 1996 after 8 years as CFO. Michael Winkler, who joined Compaq in 1995 to run its portable computer division, was promoted to general manager of the new PC products group. Earl Mason, hired from Inland Steel effective in May 1996, immediately made an impact as the new CFO. Under Mason's guidance, Compaq utilized its assets more efficiently instead of focusing just on income and profits, which increased Compaq's cash from to nearly in one year. Additionally, Compaq's return on invested capital (after-tax operating profit divided by operating assets) doubled to 50 percent from 25 percent in that period. Compaq had been producing the PC chassis at its plant in Shenzhen, China to cut costs. In 1996, instead of expanding its own plant, Compaq asked a Taiwanese supplier to set up a new factory nearby to produce the mechanicals, with the Taiwanese supplier owning the inventory until it reached Compaq in Houston. Pfeiffer also introduced a new distribution strategy, to build PCs made-to-order which would eliminate the stockpile of computers in warehouses and cut the components inventory down to two weeks, with the supply chain from supplier to dealer linked by complex software. Vice-president for Corporate Development Kenneth E. Kurtzman assembled five teams to examine Compaq's businesses and assess each unit's strategy and that of key rivals. Kurtzman's teams recommended to Pfeiffer that each business unit had to be first or second in its market within three years—or else Compaq should exit that line. Also, the company should no longer use profits from high-margin businesses to carry marginally profitable ones, as instead each unit must show a return on investment. Pfeiffer's vision was to make Compaq a full-fledged computer company, moving beyond its main business of manufacturing retail PCs and into the more lucrative business services and solutions that IBM did well at, such as computer servers which would also require more "customer handholding" from either the dealers or Compaq staff themselves. Unlike IBM and HP, Compaq would not build up field technicians and programmers in-house as those could be costly assets, instead Compaq would leverage its partnerships (including those with Andersen Consulting and software maker SAP) to install and maintain corporate systems. This allowed Compaq to compete in the "big-iron market" without incurring the costs of running its own services or software businesses. In January 1998, Compaq was at its height. CEO Pfeiffer boldly predicted that the Microsoft/ Intel "Wintel" duopoly would be replaced by "Wintelpaq".Acquisitions
Pfeiffer also made several major and some minor acquisitions. In 1997, Compaq bought Tandem Computers, known for their NonStop server line. This acquisition instantly gave Compaq a presence in the higher end business computing market. Minor acquisitions centered around building a networking arm and included NetWorth (1998) based in Irving, Texas and Thomas-Conrad (1998) based in Austin, Texas. In 1997 Microcom was also acquired, based in Norwood, MA, which brought a line of modems, Remote Access Servers (RAS) and the popular Carbon Copy software. In 1998, Compaq acquiredOuster of Pfeiffer
In early 1998, Compaq had the problem of bloated PC inventories. By summer 1998, Compaq was suffering from product-quality problems. Robert W. Stearns, SVP of Business Development, said "In feiffer'squest for bigness, he lost an understanding of the customer and built what I call empty market share--large but not profitable", while Jim Moore, a technology strategy consultant with GeoPartners Research in Cambridge, Mass., says Pfeiffer "raced to scale without having economies of scale." The "colossus" that Pfeiffer built up was not nimble enough to adapt to the fast-changing computer industry. That year Compaq forecast demand poorly and overshipped too many PCs, causing resellers to dump them at fire sale prices, and since Compaq protected resellers from heavy losses it cost them two quarters of operating profits. Pfeiffer also refused to develop a potential successor, rebuffing Rosen's suggestion to recruit a few executives to create the separate position of Compaq president. The board complained that Pfeiffer was too removed from management and the rank-and-file, as he surrounded himself with a "clique" of Chief Financial Officer Earl Mason, Senior Vice-President John T. Rose, and Senior Vice-President of Human Resources Hans Gutsch. Current and former Compaq employees complained that Gutsch was part of a group of senior executives, dubbed the "A team", who controlled access to Pfeiffer. Gutsch was said to be a "master of corporate politics, pitting senior vice presidents against each other and inserting himself into parts of the company that normally would not be under his purview". Gutsch, who oversaw security, had an extensive security system and guard station installed on the eight floor of CCA-11, where the company's senior vice presidents worked. There were accusations that Gutsch and others sought to divide top management, although this was regarded by others as sour grapes on the part of executives who were shut out of planning that involved the acquisitions of Tandem and Digital Equipment Corp. Pfeiffer reduced the size of the group working on the deal due to news leaks, saying "We cut the team down to the minimum number of people - those who would have to be directly involved, and not one person more". Robert W. Stearns, Compaq's senior vice president for business development, with responsibility for mergers and acquisitions, had opposed the acquisition of Digital as the cultural differences between both companies were too great, and complained that he was placed on the "B team" as a result. Compaq entered 1999 with strong expectations. Fourth-quarter 1998 earnings reported in January 1999 beat expectations by six cents a share with record 48 percent growth. The company launched ''Compaq.com'' as the key for its new direct sales strategy, and planned an IPO for AltaVista toward the end of 1999 in order to capitalize on the dotcom bubble. However, by February 1999, analysts were sceptical of Compaq's plan to sell both direct and to resellers. Compaq was hit with two class-action lawsuits, as a result of CFO Earl Mason, SVP John Rose, and other executives selling of stock before a conference call with analysts, where they noted that demand for PCs was slowing down. On April 17, 1999, just nine days after Compaq reported first-quarter profit being at half of what analysts had expected, the latest in a string of earnings disappointments, Pfeiffer was forced to resign as CEO in a coup led by board chairman Ben Rosen. Reportedly, at the special board meeting held on April 15, 1999, the directors were unanimous in dismissing Pfeiffer. The company's stock had fallen 50 percent since its all-time high in January 1999. Compaq shares, which traded as high as early in 1999, dropped 23 percent on April 12, 1999, the first day of trading after the first-quarter announcement and closed the following Friday at . During three out of the last six quarters of Pfeiffer's tenure, the company's revenues or earnings had missed expectations. While rival Dell Computer had 55% growth in U.S. PC sales in the first quarter of 1999, Compaq could only manage 10%. Rosen suggested that the accelerating change brought about by the Internet had overtaken Compaq's management team, saying "As a company engaged in transforming its industry for the Internet era, we must have the organizational flexibility necessary to move at Internet speed." In a statement, Pfeiffer said "Compaq has come a long way since I joined the company in 1983" and "under Ben's guidance, I know this company will realize its potential." Rosen's priority was to have Compaq catchup as an E-commerce competitor, and he also moved to streamline operations and reduce the indecision that plagued the company. Roger Kay, an analyst at International Data Corporation, observed that Compaq's behavior at times seemed like a personal vendetta, noting that "Eckhard has been so obsessed with staying ahead of Dell that they focused too hard on market share and stopped paying attention to profitability and liquidity. They got whacked in a price war that they started." Subsequent earnings releases from Compaq's rivals, Dell, Gateway, IBM, and Hewlett-Packard suggested that the problems were not affecting the whole PC industry as Pfeiffer had suggested. Dell and Gateway sold direct, which helped them to avoid Compaq's inventory problems and compete on price without dealer markups, plus Gateway sold web access and a broad range of software tailored to small businesses. Hewlett-Packard's PC business had similar challenges like Compaq but this was offset by HP's extremely lucrative printer business, while IBM sold PCs at a loss but used them to lock in multi-year services contracts with customers. After Pfeiffer's resignation, the board established an office of the CEO with a triumvirate of directors; Rosen as interim CEO and vice chairmen Frank P. Doyle and Robert Ted Enloe III. They began "cleaning house", as shortly afterward many of Pfeiffer's top executives resigned or were pushed out, including John J. Rando, Earl L. Mason, and John T. Rose. Rando, senior vice president and general manager of Compaq Services, was a key player during the merger discussions and the most senior executive from Digital to remain with Compaq after the acquisition closed and had been touted by some as the heir-apparent to Pfeiffer. Rando's division had performed strongly as it had sales of for the first quarter compared to in 1998, which met expectations and was anticipated to post accelerated and profitable growth going forward. At the time of Rando's departure, Compaq Services ranked third behind those of IBM and EDS, while slightly ahead of Hewlett-Packard's and Andersen Consulting, however customers switched from Digital and Tandem technology-based workstations to those of HP, IBM, and Sun Microsystems. Mason, senior vice president and chief financial officer, had previously been offered the job of chief executive of Alliant Foodservice, Inc., a foodservice distributor based in Chicago, and he informed Compaq's board that he accepted the offer. Rose, senior vice president and general manager of Compaq's Enterprise Computing group, resigned effective as of June 3 and was succeeded by Tandem veteran Enrico Pesatori. Rose was reportedly upset that he was not considered for the CEO vacancy, which became apparent once Michael Capellas was named COO. While Enterprise Computing, responsible for engineering and marketing of network servers, workstations and data-storage products, reportedly accounted for one third of Compaq's revenues and likely the largest part of its profits, it was responsible for the earnings shortfall in Q1 of 1999. In addition, Rose was part of the "old guard" close to former CEO Pfeiffer, and he and other Compaq executives had been criticized at the company's annual meeting for selling stock before reporting the sales slowdown. Rose was succeeded by SVP Enrico Pesatori, who had previously worked as a senior executive at Olivetti, Zenith Data Systems, Digital Equipment Corp. and Tandem Computers. Capellas was appointed COO after pressure mounted on Rosen to find a permanent CEO, however it was reported that potential candidates did not want to work under Rosen as chairman. Around the same time Pesatori was placed in charge of the newly created Enterprise Solutions and Services Group, making him Compaq's second most powerful executive in operational responsibility after Capellas. Pfeiffer's permanent replacement was Michael Capellas, who had been serving as Compaq's SVP and CIO for under a year. A couple months after Pfeiffer's ouster, Capellas was elevated to interim chief operating officer on June 2, 2000, and was soon appointed president and CEO. Capellas also assumed the title of chairman on September 28, 2000, when Rosen stepped down from the board of directors. At his retirement, Rosen proclaimed "These are great achievements—to create 65,000 jobs, in sales and in market value, all starting with a sketch and a dream".Late 1990s–2000s
In 1998, Compaq signed new sales and equipment alliance with NaviSite. Under the pact, Compaq agreed to promote and sell NaviSite Web hosting services. In return, NaviSite took Compaq as a preferred provider for its storage and Intel-based servers. During November 1999, Compaq began to work with Microsoft to create the first in a line of small-scale, web-based computer systems called MSN Companions.Struggles
Capellas was able to restore some of the luster lost in the latter part of the Pfeiffer era and he repaired the relationship with Microsoft which had deteriorated under his predecessor's tenure. However Compaq still struggled against lower-cost competitors with direct sales channels such as Dell who took over the top spot of PC manufacturer from Compaq in 2001. Compaq relied significantly on reseller channels, so their criticism caused Compaq to retreat from its proposed direct sales plan, although Capellas maintained that he would use the middlemen to provide value-added services. Despite falling to No. 2 among PC manufacturers, Capellas proclaimed "We are No. 2 in the traditional PC market, but we're focused on industry leadership in the next generation of Internet access devices and wireless mobility. That's where the growth and the profitability will be." The company's longer-term strategy involved extending its services to servers and storage products, as well as handheld computers such as the iPAQ PocketPC which accounted for 11 percent of total unit volume. Compaq struggled as a result of the collapse of the dot-com bubble, which hurt sales of their high-end systems in 2001 and 2002, and they managed only a small profit in a few quarters during these years. They also accumulated $1.7 billion in short-term debt around this time. The stock price of Compaq, which was around $25 when Capellas became CEO, was trading at half that by 2002.Acquisition by Hewlett-Packard
In 2002, Compaq signed a merger agreement with Hewlett-Packard for , including for goodwill, where each Compaq share would be exchanged for 0.6325 of a Hewlett-Packard share. There would be a termination fee of that either company would have to pay the other to break the merger. Compaq shareholders would own 36% of the combined company while HP's would have 64%. Hewlett-Packard had reported yearly revenues of , while Compaq's was , and the combined company would have been close to IBM's revenues. It was projected to have in annual cost savings by mid-2004. The expected layoffs at Compaq and HP, 8500 and 9000 jobs respectively, would leave the combined company with a workforce of 145,000. The companies would dole out a combined in bonuses to prevent key employees from leaving if shareholders approve the proposed merger, with for HP employees and for Compaq employees. Both companies had to seek approval from their shareholders through separate special meetings. While Compaq shareholders unanimously approved the deal, there was a public proxy battle within HP as the deal was strongly opposed by numerous large HP shareholders, including the sons of the company founders, Walter Hewlett and David W. Packard, as well as the California Public Employees’ Retirement System ( CalPERS) and the Ontario Teachers' Pension Plan. Walter Hewlett only reluctantly approved the merger, in his duty as a member of the board of directors, since the merger agreement "called for unanimous board approval in order to ensure the best possible shareholder reception". While supporters of the merger argued that there would be economies of scale and that the sales of PCs would drive sales of printers and cameras, Walter Hewlett was convinced that PCs were a low-margin but risky business that would not contribute and would likely dilute the old HP's traditionally profitable Imaging and Printing division. David W. Packard in his opposition to the deal " itedmassive layoffs as an example of this departure from HP’s core values... rguingthat although the founders never guaranteed job security, 'Bill and Dave never developed a premeditated business strategy that treated HP employees as expendable.'" Packard further stated that " Fiorina">arlyFiorina’s high-handed management and her efforts to reinvent the company ran counter to the company’s core values as established by the founders". The founders' families who controlled a significant amount of HP shares were further irked because Fiorina had made no attempt to reach out to them and consult about the merger, instead they received the same standard roadshow presentation as other investors. Analysts on Wall Street were generally critical of the merger, as both companies had been struggling before the announcement, and the stock prices of both companies dropped in the months after the merger agreement was made public. Particularly rival Dell made gains from defecting HP and Compaq customers who were wary of the merger. Carly Fiorina, initially seen as HP's savior when she was hired as CEO back in 1999, had seen the company's stock price drop to less than half since she assumed the position, and her job was said to be on shaky ground before the merger announcement. HP's offer was regarded by analysts to be overvaluing Compaq, due to Compaq's shaky financial performance in the past recent years (there were rumors that it could run out of money in 12 months and be forced to cease business operations had it stayed independent), as well as Compaq's own more conservative valuation of its assets. Detractors of the deal noted that buying Compaq was a "distraction" that would not directly help HP take on IBM's breadth or Dell Computer's direct sales model. Plus there were significant cultural differences between HP and Compaq; which made decisions by consensus and rapid autocratic styles, respectively. One of Compaq's few bright spots was its services business, which was outperforming HP's own services division. The merger was approved by HP shareholders only after the narrowest of margins, and allegations of vote buying (primarily involving an alleged last-second back-room deal with Deutsche Bank) haunted the new company. It was subsequently disclosed that HP had retained Deutsche Bank's investment banking division in January 2002 to assist in the merger. HP had agreed to pay Deutsche Bank guaranteed, and another contingent upon approval of the merger. On August 19, 2003, thePost-merger
Capellas, Compaq's last chairman and CEO, became president of the post-merger Hewlett-Packard, under chairman and CEO Carly Fiorina, to ease the integration of the two companies. However, Capellas was reported not to be happy with his role, being said not to be utilized and being unlikely to become CEO as the board supported Fiorina. Capellas stepped down as HP president on November 12, 2002, after just six months on the job, to become CEO of MCI Worldcom where he would lead its acquisition byHeadquarters
The Compaq World Headquarters (now HP United States) campus consisted of of land which contained 15 office buildings, 7 manufacturing buildings, a product conference center, an employee cafeteria, mechanical laboratories, warehouses, and chemical handling facilities. Instead of headquartering the company in a downtown Houston skyscraper, then-CEO Rod Canion chose a West Coast-style campus surrounded by forests, where every employee had similar offices and no-one (not even the CEO) had a reserved parking spot. As it grew, Compaq became so important to Houston that it negotiated the expansion of Highway 249 in the late 1980s, and many other technology companies appeared in what became known as the "249 Corridor". After Canion's ouster, senior vice-president of human resources, Hans W. Gutsch, oversaw the company's facilities and security. Gutsch had an extensive security system and guard station installed on the eight floor of CCA-1, where the company's senior vice presidents had their offices. Eckhard Pfeiffer, president and CEO, introduced a whole series of executive perks to a company that had always had an egalitarian culture; for instance, he oversaw the construction of an executive parking garage, previously parking places had never been reserved. On August 31, 1998, the Compaq Commons was opened in the headquarters campus, which featured a conference center, an employee convenience store, a wellness center, and an employee cafeteria. In 2009, HP sold part of Compaq's former headquarters to the Lone Star College System. Hewlett Packard Buildings #7 & #8, two eight-story reinforced concrete buildings totaling 450,000 square feet, plus a 1,200-car parking garage and a central chiller plant, were all deemed by the college to be too robust and costly to maintain, and so they were demolished by implosion on September 18, 2011. , the site is one of HP's largest campuses, with 7,000 employees in all six of HP's divisions. In 2018, HP announced the sale of the entire former Compaq HQ campus.Competitors
Compaq originally competed directly against IBM, manufacturing computer systems equivalent with the IBM PC, as well as Apple Computer. In the 1990s, as IBM's own PC division declined, Compaq faced other IBM PC Compatible manufacturers like Dell Computer, Packard Bell, AST Research, andSponsorship
Before its merger with HP, Compaq sponsored the Williams Formula One team when it was still powered by BMW engines. HP inherited and continued the sponsorship deal for a few years. Compaq sponsored Queens Park Rangers F.C. for the 1994–95 and 1995–96 seasons.See also
* Compaq Portable series * List of computer system manufacturers * Market share of personal computer vendorsNotes
References
External links
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