Compaq (a portmanteau of Compatibility And Quality; occasionally
referred to as CQ prior to its final logo) was a company founded in
1982 that developed, sold, and supported computers and related
products and services.
Compaq produced some of the first
compatible computers, being the first company to legally reverse
IBM Personal Computer. It rose to become the
largest supplier of PC systems during the 1990s before being overtaken
by HP in 2001. Struggling to keep up in the price wars against
Dell, as well as with a risky acquisition of DEC,
acquired for US$25 billion by HP in 2002. The
remained in use by HP for lower-end systems until 2013 when it was
The company was formed by Rod Canion, Jim Harris and Bill
Texas Instruments senior managers. Murto (SVP of Sales)
Compaq in 1987, while Canion (President and CEO) and Harris
(SVP of Engineering) left under a shakeup in 1991, which saw Eckhard
Pfeiffer appointed President and CEO. Pfeiffer served through the
1990s. Ben Rosen provided the venture capital financing for the
fledgling company and served as chairman of the board for 18 years
from 1983 until September 28, 2000, when he retired and was succeeded
by Michael Capellas, who served as the last Chairman and CEO until its
merger with HP.
Prior to its takeover the company was headquartered in a facility in
northwest unincorporated Harris County, Texas, that now continues as
HP's largest United States facility.
1.1.1 Introduction of
Compaq DeskPro 386
1.2 The 1990s
1.2.1 Ouster of co-founders
1.2.2 Market ascension
1.2.3 Management shuffle
1.2.5 Ouster of Pfeiffer
1.3 Late 1990s–2000s
1.4 Acquisition by Hewlett-Packard
5 See also
8 External links
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 and Mather; it being the name least rejected. The
Compaq PC was sketched out on a placemat by Canion while dining
with the founders in a Houston pie shop. Their first venture
capital came from
Benjamin M. Rosen and
Sevin Rosen Funds who helped
the fledgling company secure $1.5 million to produce their initial
computer. Overall, the founders managed to raise $25 million from
venture capitalists, as this gave stability to the new company as well
as providing assurances to the dealers or middlemen.
Unlike many startups,
Compaq differentiated its offerings from the
IBM clones by not focusing mainly on price, but instead
concentrating on new features, such as portability and better graphics
displays as well as performance—and all at prices comparable to
those of IBM’s PCs. In contrast to
Dell Computer and Gateway 2000,
Compaq hired veteran engineers with an average of 15 years experience,
which lent credibility to Compaq's reputation of reliability among
customers. Due to its partnership with Intel,
Compaq was able
to maintain a technological lead in the market place as it was the
first one to come out with computers containing the next generation of
Under Canion's direction,
Compaq sold computers only through dealers
to avoid potential competition that a direct sales channel would
foster, which helped foster loyalty among resellers. By giving dealers
considerable leeway in pricing Compaq's offerings, either a
significant markup for more profits or discount for more sales,
dealers had a major incentive to advertise Compaq.
During its first year of sales (second year of operation), the company
sold 53,000 PCs for sales of $111 million, the first start-up to hit
the $100 million mark that fast.
Compaq went public in 1983 on the
NYSE and raised $67 million. In 1986, it enjoyed record sales of $329
million from 150,000 PCs, and became the youngest-ever firm to make
the Fortune 500. In 1987,
Compaq hit the $1 billion revenue mark,
taking the least amount of time to reach that milestone. By
Compaq held the fifth place spot in the PC market with $3
billion in sales that year.
Two key marketing executives in Compaq's early years, Jim D'Arezzo and
Sparky Sparks, had come from IBM's PC Group. Other key executives
responsible for the company's meteoric growth in the late 80s and
early 90s were Ross A. Cooley, another former
IBM associate, who
served for many years as SVP of GM North America; Michael Swavely, who
was the company's chief marketing officer in the early years, and
eventually ran the North America organization, later passing along
that responsibility to Cooley when Swavely retired. In the United
States, Brendan A. "Mac" McLoughlin (another long time
led the company's field sales organization after starting up the
Western U.S. Area of Operations. These executives, along with other
key contributors, including Kevin Ellington, Douglas Johns, Steven
Flannigan, and Gary Stimac, helped the company compete against the IBM
Corporation in all personal computer sales categories, after many
predicted that none could compete with the behemoth.
The soft-spoken Canion was popular with employees and the culture that
he built helped
Compaq to attract the best talent. Instead of
headquartering the company in a downtown Houston skyscraper, 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. At semi-annual meetings, turnout was high as
any employee could ask questions to senior managers.
In 1987, company co-founder
Bill Murto resigned to study at a
religious education program at the University of St. Thomas. Murto had
helped to organize the company's marketing and authorized-dealer
distribution strategy, and held the post of senior vice president of
sales since June 1985. Murto was succeeded by Ross A. Cooley, director
of corporate sales. Cooley would report to Michael S. Swavely, vice
president for marketing, who has been given increased responsibility
and the title of vice president for sales and marketing.
In November 1982
Compaq announced their first product, the Compaq
Portable, a portable
IBM PC compatible
IBM PC compatible personal computer. It was
released in March 1983 at $2995, considerably more affordable than the
Canadian Hyperion. The
Compaq Portable was one of the progenitors of
today's laptop; some called it a "suitcase computer" for its size and
the look of its case. It was the second
IBM PC compatible, being
capable of running all software that would run on an
IBM PC. It was a
commercial success, selling 53,000 units in its first year and
generating $111 million in sales revenue. The
Compaq Portable was the
first in the range of the
Compaq Portable series.
Compaq was able to
market a legal
IBM clone because
IBM mostly used "off the shelf" parts
for their PC. Furthermore,
Microsoft had kept the right to license the
operating system to other computer manufacturers. The only part which
had to be duplicated was the BIOS, which
Compaq did legally by using
clean room design at a cost of $1 million.
Unlike other companies,
Compaq did not bundle application software
with its computers. Vice President of Sales and Service H. L. Sparks
said in early 1984:
We've considered it, and every time we consider it we reject it. I
don't believe and our dealer network doesn't believe that bundling is
the best way to merchandise those products.
You remove the freedom from the dealers to really merchandise when you
bundle in software. It is perceived by a lot of people as a marketing
gimmick. You know, when you advertise a $3,000 computer with $3,000
worth of free software, it obviously can't be true.
The software should stand on its merits and be supported and so should
the hardware. Why should you be constrained to use the software that
comes with a piece of hardware? I think it can tend to inhibit sales
over the long run.
Compaq instead emphasized PC compatibility, of which Future Computing
in May 1983 ranked
Compaq as among the "Best" examples. By October
1983, when the company announced the
Compaq Plus with a 10 MB
PC Magazine wrote of "the reputation for compatibility it
built with its highly regarded floppy disk portable". Compaq
computers remained the most compatible PC clones into 1984, and
maintained its reputation for compatibility for years, even as
clone BIOSes became available from
Phoenix Technologies and other
companies that also reverse engineered IBM's design, then sold their
version to clone manufacturers.
On June 28, 1984
Compaq released the
Compaq Deskpro, a 16-bit desktop
computer using an
Intel 8086 microprocessor running at 7.14 MHz.
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
Compaq Deskpro 386, in 1986, it marked the
first CPU change to the PC platform that was not initiated by IBM. An
IBM-made 386 machine eventually reached the market seven months later,
but by that time
Compaq was the 386 supplier of choice and
lost its image of technical leadership.
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
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.
Compaq had become successful by being 100 percent
IBM-compatible, it decided to continue with the original AT
bus—which it renamed ISA—instead of licensing IBM's MCA. Prior
to developing EISA
Compaq had invested significant resources into
reverse engineering MCA, but its executives correctly calculated that
the $80 billion already spent by corporations on IBM-compatible
technology would make it difficult for even
IBM to force manufacturers
to adopt the new MCA design. Instead of cloning MCA,
Compaq formed an
Hewlett Packard and seven other major manufacturers,
known collectively as the "Gang of Nine", to develop EISA.
Aerial map of the
Compaq headquarters, now the HP USA campus in
unincorporated Harris County, Texas
Compaq was so influential that observers and its executives
spoke of "
Compaq compatible". InfoWorld reported that "In the [ISA
Compaq is already IBM's equal in being seen as a safe bet",
quoting a sell-side analyst describing the company as "now the safe
choice in personal computers". Even rival Tandy Corporation
acknowledged Compaq's leadership, stating that within the Gang of Nine
"when you have 10 people sit down before a table to write a letter to
the president, someone has to write the letter.
Compaq is sitting down
at the typewriter".
Ouster 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
Rod Canion to resign as President and CEO.
Pfeiffer had joined
Texas Instruments, and established
operations from scratch in both Europe and Asia. Pfeiffer was given
$20,000 USD 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, and Gateway 2000,
Compaq suffered a $71 million loss for
that quarter, their first loss as a company, while the stock had
dropped by over two-thirds. An analyst stated that "
made a lot of tactical errors in the last year and a half. They were
trend-setters; now they are lagging". Canion initially believed that
the 1990s recession was responsible for Compaq's declining sales but
insisted that they would recover once the economy improved, however
Pfeiffer's observation of the European market noted that it was
competition as rivals could match
Compaq at a fraction of the cost.
Under pressure from Compaq's board to control costs as staff was
ballooning at their Houston headquarters despite falling U.S. sales,
while the number of non-U.S. employees had stayed constant, Compaq
made its first-ever layoffs (1400 employees which was 12% of its
workforce) while Pfeiffer was promoted to EVP and COO.
Rosen and Canion had disagreed about how to counter the cheaper Asian
PC imports, as Canion wanted
Compaq to build lower cost PCs with
components developed in-house in order to preserve Compaq's reputation
for engineering and quality, while Rosen believed that
to buy standard components from suppliers and reach the market faster.
While Canion developed an 18-month plan to create a line of low-priced
computers, Rosen sent his own
Compaq engineering team to Comdex
without Canion's knowledge and discovered that a low-priced PC could
be made in half the time and at lower cost than Canion's
initiative. It was also believed[by whom?] that Canion's
consensus-style management slowed the company's ability to react in
the market, whereas Pfeiffer's autocratic style would be suited to
price and product competition.
Rosen initiated a 14-hour board meeting, and the directors also
interviewed Pfeiffer for several hours without informing Canion. At
the conclusion, the board was unanimous in picking Pfeiffer over
Canion. As Canion was popular with company workers, 150 employees
staged an impromptu protest with signs stating "We love you Rod." and
taking out a newspaper ad saying "Rod, you are the wind beneath our
wings. We love you." Canion declined an offer to remain on
Compaq's board and was bitter about his ouster as he didn't speak
to Rosen for years, although their relationship became cordial again.
In 1999, Canion admitted that his ouster was justified, saying "I was
burned out. I needed to leave. He [Rosen] felt I didn't have a strong
sense of urgency". Two weeks after Canion's ouster, five other senior
executives resigned, including remaining company founder James Harris
as SVP of Engineering. These departures were motivated by an enhanced
severance or early retirement, as well as an imminent demotion as
their functions were to be shifted to vice presidents.
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
IBM as the top PC manufacturer in 1994, as both
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
Compaq ending up selling the printer business to Xerox and
took a charge of $50 million.
On June 26, 1995,
Compaq reached an agreement with Cisco Systems Inc.
in order to get into networking, including digital modems, routers,
and switches favored by small businesses and corporate departments,
which was now a $4 billion business and the fastest-growing part of
the computer hardware market.
Compaq also built up a network
engineering and marketing staff.
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
Compaq in 1993 from
Digital Equipment Corporation
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 on 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 $700 million to nearly $5 billion in one
year. Also Compaq's return on invested capital (after-tax operating
profit divided by operating assets) has 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 was not going to build up field technicians and programmers
in-house as these could be costly assets, instead
leverage its partnerships (including these with Andersen Consulting
and software maker SAP) to install and maintain corporate systems.
Compaq to compete in the "big-iron market" without
incurring the costs of running its own services or software
In January 1998,
Compaq was at its height. CEO Pfeiffer boldly
predicted that the Microsoft/
Intel "Wintel" duopoly would be replaced
Pfeiffer also made several major (and some minor) acquisitions. In
Compaq bought Tandem Computers, known for their
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
Texas and Thomas-Conrad (1998) based in Austin, Texas. In
Microcom was also acquired, based in Norwood, MA, which brought a
line of modems, Remote Access Servers (RAS) and the popular Carbon
Digital Equipment Corporation
Digital Equipment Corporation for a
then-industry record of $9 billion USD. The merger made Compaq, at the
time, the world's second largest computer maker in the world in terms
of revenue behind IBM. Digital Equipment, which had nearly twice
as many employees as
Compaq while generating half the revenue, had
been a leading computer company during the 1970s and early 1980s.
However, Digital had struggled during the 1990s, with high operating
costs. For nine years the company had lost money or barely broke even,
and had recently refocused itself as a "network solutions company". In
Compaq had considered a bid for Digital but only became
seriously interested in 1997 after Digital's major divestments and
refocusing on the Internet. At the time of the acquisition, services
accounted for 45 percent of Digital's revenues (about $6 billion) and
their gross margins on services averaged 34 percent, considerably
higher than Compaq's 25% margins on PC sales and also satisfying
customers who had demanded more services from
Compaq for years. Compaq
had originally wanted to purchase only Digital's services business but
that was turned down. When the announcement was made, it was
initially viewed as a master stroke as it immediately gave
22,000 person global service operation to help corporations handle
major technological purchases (by 2001 services made up over 20% of
Compaq's revenues, largely due to the Digital employees inherited from
the merger), in order to compete with IBM. However it was also risky
merger, as the combined company would have to lay off 2,000 employees
Compaq and 15,000 from Digital which would potentially hurt
Compaq fell behind schedule in integrating
Digital's operations, which also distracted the company from its
strength in low-end PCs where it used to lead the market in rolling
out next-generation systems which let rival
Dell grab market
Compaq had three consulting firms working to
integrate Digital alone.
However, Pfeiffer had little vision for what the combined companies
should do, or indeed how the three dramatically different cultures
could work as a single entity, and
Compaq struggled from strategy
indecisiveness and lost focus, as a result being caught in between the
low end and high end of the market. Mark Anderson, president of
Strategic News Service, a research firm based in Friday Harbor, Wash.
was quoted as saying The kind of goals he had sounded good to
shareholders – like being a $50 billion company by the year 2000, or
to beat I.B.M. – but they didn't have anything to do with customers.
The new C.E.O. should look at everything Eckhard acquired and ask: did
the customer benefit from that. If the answer isn't yes, they should
get rid of it. On one hand,
Compaq had previously dominated the PC
market with its price war but was now struggling against Dell, which
sold directly to buyers, avoiding the dealer channel and its markup,
and built each machine to order to keep inventories and costs at a
minimum. At the same time, Compaq, through its acquisitions of the
Digital Equipment Corporation
Digital Equipment Corporation last year and Tandem Computer in 1997,
had tried to become a major systems company, like
IBM and HP were able generate repeat business
from corporate customers to drive sales of their different divisions,
Compaq had not yet managed to make its newly acquired sales and
services organizations work as seamlessly.
Ouster of Pfeiffer
In early 1998,
Compaq had the problem of bloated PC inventories. By
Compaq was suffering from product-quality problems.
Robert W. Stearns, SVP of Business Development, said "In [Pfeiffer's]
quest 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
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
Pfeiffer also refused to develop a potential successor, rebuffing
Rosen's suggestion to recruit a few executives to create the separate
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-1, 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 $50 million USD 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, 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 $51.25 early in 1999, dropped 23 percent on April
12, the first day of trading after the first-quarter announcement and
closed the following Friday at $23.62. 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,
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
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
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
Compaq Services, was a key player during the merger
discussions and the most senior executive from Digital to remain
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 $1.6 billion for the first
quarter compared to $113 million 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. 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
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, 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, $40 billion in sales and $40 billion in market value, all
starting with a sketch and a dream".
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.
Compaq still struggled against lower-cost competitors with
direct sales channels such as
Dell who took over the top spot of PC
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 involves 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.
During November 1999,
Compaq began to work with
Microsoft to create
the first in a line of small-scale, web-based computer systems called
Compaq also signed new sales and equipment alliance with
NaviSite. Under the pact,
Compaq agreed to promote and sell NaviSite
Web hosting services. In return,
Compaq as a preferred
provider for its storage and Intel-based servers.
Compaq struggled as a result of the collapse of the Dot-com bubble
bust, 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
Compaq signed a merger agreement with
$24.2 billion, including $14.45 billion for goodwill, where each
Compaq share would be exchanged for 0.6325 of a
There would be a termination fee of $675 million USD 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
Hewlett-Packard had reported yearly revenues of $47
billion, while Compaq's was $40 billion, and the combined company
would have been close to IBM's $90 billion revenues. It was projected
to have $2.5 billion in annual cost savings by mid-2004. The expected
Compaq and HP, 8500 and 9000 jobs, respectively, would
leave the combined company with a workforce of 145,000.
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 "[cited] massive layoffs as an example of this departure from
HP’s core values...[arguing] that 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’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,[clarification needed] 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 $1 million guaranteed, and another $1 million contingent upon
approval of the merger. On August 19, 2003, the U.S. SEC charged
Deutsche Bank with failing to disclose a material conflict of interest
in its voting of client proxies for the merger and imposed a civil
penalty of $750,000.
Deutsche Bank consented without admitting or
denying the findings.
Compaq's pre-merger ticker symbol was CPQ. This was combined with
Hewlett-Packard's ticker symbol (HWP) to create the current ticker
Compaq headquarters, now the
Hewlett-Packard United States
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 on November 12, 2002, just six months on the
job, to become CEO of MCI Worldcom where he would lead its acquisition
by Verizon. Capellas' former role of president was not filled as the
executives who reported to him then reported directly to the
Fiorina helmed HP for nearly three years after Capellas left. HP laid
off thousands of former Compaq, DEC, HP, and Tandem employees,
its stock price generally declined and profits did not perk up.
Several senior executives from the
Compaq side including Jeff Clarke
and Peter Blackmore would resign or be ousted from the post-merger HP.
Though the combination of both companies' PC manufacturing capacity
initially made it the number one, it soon lost the lead and further
market share to
Dell which squeezed HP on low end PCs. HP was
also unable to compete effectively with
IBM in the high-end server
market. In addition, the merging of the stagnant
assembly business with HP's lucrative printing and imaging division
was criticized for obstructing the profitability of the
printing/imaging segment. Overall, it has been suggested that the
Compaq was not a good move for HP, due to the narrow
profit margins in the commoditized PC business, especially in light of
IBM's 2004 announcement to sell its PC division to Lenovo. The
Inquirer noted that the continued low return on investment and small
margins of HP's personal computer manufacturing business, now named
the Personal Systems Group, "continues to be what it was in the
individual companies, not much more than a job creation scheme for its
In February 2005, the Board of Directors ousted Fiorina. Former
Compaq CEO Capellas was mentioned by some as a potential successor,
but several months afterwards,
Mark Hurd was hired as President and
CEO of HP. Hurd separated the PC division from the imaging and
printing division and renamed it the Personal Systems Group, placing
it under the leadership of EVP Todd R. Bradley. Hewlett Packard's PC
business has since been reinvigorated by Hurd's restructuring and now
generates more revenue than the traditionally more profitable
printers. By late 2006, HP had retaken the #1 sales position of PCs
from Dell, which struggled with missed estimates and poor quality, and
held that rank until supplanted in the mid-2010s by Lenovo.
Compaq products have been re-branded with the HP nameplate, such
as the company's market leading
ProLiant server line (now owned by
Hewlett Packard Enterprise, which spun off from HP in 2015), while the
Compaq brand was repurposed for some of HP's consumer-oriented and
budget products, notably
Compaq Presario PCs. HP's business computers
line was discontinued in favour of the
Compaq Evo line, which was
rebranded HP Compaq. HP's Jornada PDAs were replaced by
PDAs, which were renamed HP iPAQ. Following the merger, all Compaq
computers were shipped with HP software.
Post merger logo for
In May 2007, HP announced in a press release a new logo for their
Compaq Division to be placed on the new model
In 2008, HP reshuffled its business line notebooks. The "Compaq" name
from its "HP Compaq" series was originally used for all of HP's
business and budget notebooks. However, the
HP EliteBook line became
the top of the business notebook lineup while the HP
Compaq B series
became its middle business line. As of early 2009, the "HP
ProBook" filled out HP's low end business lineup.
In 2009, HP sold part of Compaq's former headquarters to the Lone Star
On August 18, 2011, then-CEO of HP
Leo Apotheker announced plans for a
partial or full spinoff of the Personal Systems Group. The PC unit had
the lowest profit margin although it accounted for nearly a third of
HP’s overall revenues in 2010. HP was still selling more PCs than
any other vendor, shipping 14.9 million PCs in the second quarter of
2011 (17.5% of the market according to Gartner), while
Dell and Lenovo
were tied for second place, each with more than a 12% share of the
market and shipments of over 10 million units. However, the
announcement of the PC spinoff (concurrent with the discontinuation of
WebOS, and the purchase of Autonomy Corp. for $10 billion) was poorly
received by the market, and after Apotheker's ouster, plans for a
divestiture were cancelled. In March 2012, the printing and
imaging division was merged into the PC unit. In October 2012,
according to Gartner,
Lenovo took the lead as the number one PC
manufacturer from HP, while IDC ranked
Lenovo just right behind
HP. In Q2 2013,
Forbes reported that
Lenovo ranked ahead of HP as
the world’s number one PC supplier.
HP discontinued the
Compaq brand name in the United States in 2013. In
2015, the Argentinian company Grupo Newsan acquired the brand's
license and developed a new line of Presario
Notebooks.[better source needed]
Compaq World Headquarters (now HP United States) campus consisted of
80 acres (320,000 m2) of land which contained 15 office
buildings, 7 manufacturing buildings, a product conference center, an
employee cafeteria, mechanical laboratories, warehouses, and chemical
Instead of headquartering the company in a downtown Houston
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
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 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
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
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
so they were demolished by implosion on September 18,
As of January 2013[update] the site is one of HP's largest
campuses, with 7,000 employees in all six of HP's divisions.
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
IBM PC Compatible manufacturers like
Packard Bell, AST Research, and Gateway 2000.
By the mid-1990s, Compaq's price war had enabled it to overtake IBM
and Apple, while other
IBM PC Compatible manufacturers such as Packard
Bell and AST were driven from the market.
Dell became the number one supplier of PCs in 2001.
At the time of their 2002 merger,
Compaq and HP were the second and
third largest PC manufacturers, so their combination made them number
one. However, the combined HP-
Compaq struggled and fell to second
Dell from 2003–2006. Due to Dell's struggles in late
2006, HP has led all PC vendors since 2007 onwards.
During its existence as a division of HP,
Compaq primarily competed
against other budget-oriented personal computer series from
manufacturers including Acer, Lenovo, and Toshiba. Most of Compaq's
Dell were later acquired by bigger rivals like Acer
Gateway 2000 and Packard Bell) and
Lenovo absorbing IBM's PC
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.
Computer Science portal
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List of computer system manufacturers
Market share of personal computer vendors
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Silicon Cowboys (2016) Documentary
web site of OPEN - How
Compaq Ended IBM's PC Domination and Helped
Invent Modern Computing book
Hewlett Packard Enterprise
Raymond J. Lane
Gary M. Reiner
Patricia F. Russo
Meg Whitman (Chairman)
John F. Schultz
Computer hardware products
Indigo Digital Press
HP Insight Software
List of HP CEOs in Order
Co-founders William Hewlett and David Packard
John A. Young
Lewis E. Platt
HP spying scandal
Queens Park Rangers F.C.
Queens Park Rangers F.C. — Shirt sponsors
1987–1990: Holland/Fly KLM
1990: Influence Leisure
1990–1991: Holland/Fly KLM
1992–1993: Classic FM
2001–2003: JD Sports
2011–2012: Malaysia Airlines