Gone, but not forgotten: Compaq

While computers had finally made the giant leap from machines that took up most of a room to something that could fit on a desk, they were still far from being portable. In 1982 three entrepreneurs decided to change this.

Starting with $ 3,000, Rod Canion, Jim Harris, and Bill Murto Founded a small company called Compaq. The name was a portmanteau of the words “compatibility” and “quality”.

It represented the company’s vision of adopting the business model known as International Business Machines (IBM). The idea was to develop an IBM compatible PC that would be as powerful as its competitor’s top desktop unit in a smaller, more portable form factor.

The company’s first market entry was in 1983 with the Compaq Portable.

It was about the size of the typical towers we have today, but the all-in-one had everything you could need for being on the go, including a 9-inch monochrome monitor and a pull-out keyboard. The entire unit could fit in the hand luggage compartment of an airplane, which Compaq intended.

The Compaq Portable is powered by an Intel 4.77 MHz 8088 processor and has 128 KB of RAM and two configuration options for storage – either two 5.25-inch double-sided, double-density (360 KB) floppy drives or one floppy disk drive and a 10MB hard drive. It ran MS-DOS with a proprietary BIOS called Compaq DOS 1.13.

Computing has become so ubiquitous that even those who remember the early days look back in amazement at how far we’ve come in just 40 or 50 years.

The Compaq Portable debuted at a high price of around $ 3,600. The system was way out of range for the average user, but it was a bargain for business people who were always on the go. Compaq sold more than 53,000 units in its first year and posted record sales of $ 111 million. Record sales continued, with the portable PC selling $ 329 million and $ 504 million in 1983 and 1984, respectively.

The dynamism of those early years made Compaq a leader in the PC industry. In 1986 the company became broke another record by becoming the youngest company to be listed on the Fortune 500 immediately after the Compaq Portable II was released. By 1987, the startup had sales of over $ 1 billion. At that point, one of the founders, Bill Murto, left his position as Senior Vice President of Sales. Despite his departure, the company continued to grow.

Rod Canion’s leadership has been a huge part of Compaq’s success. Canion had a relaxed corporate culture that attracted some of the top talent in the industry. By 1991 Compaq had a turnover of over 3 billion US dollars and occupied the fifth market share.

However, 1991 was a turbulent year for the company. Differences in vision between Canion’s CEO and the board of directors led to the resignation from Canion and its co-founder and SVP of Engineering, Jim Harris. Part of the conflict arose because competitors such as Dell, AST Research, and Gateway came out and offered cheaper alternatives to Compaq computers. The company’s growth declined to 4 percent versus an industry average of 7 percent.

The board wanted to change things, but Canion insisted on continuing to do what had made the company famous – selling high-end business machines to corporate dealers with a large profit margin. After Compaq suffered its first quarterly loss of $ 71 million and the company’s shares fell over 66 percent, Canion was ousted. Harris and four other long-time executives followed him five weeks later.

COO Eckhard Pfeiffer became the new CEO and led the company in a new direction. By that time, Compaq had focused on marketing and manufacturing systems such as DeskPro and SystemPro that were intended for the enterprise market.

Pfeiffer’s vision was to bring affordable PCs to the average consumer. The first of these was the Compaq Presario. It was one of the first PCs to hit the consumer market for less than $ 1,000, and it was a success.

To achieve these new low prices, Compaq was the first major PC company to use chips from AMD and Cyrix, a practice that eventually became the industry standard. This new strategy sparked a price war that put several other competitors, including Packard Bell and AST Research, out of business. In addition, Compaq was promoted from third place behind Apple to the second largest PC manufacturer in 1993. IBM still held the top spot, but not for long.

By 1994 Compaq had even surpassed the king of business machines. Again, much of that success had to do with reducing entry costs. Compaq’s reign would be short-lived after a series of bad decisions and acquisitions.

The company began manufacturing printers in 1989, and these were well received, but Pfeiffer didn’t think Compaq had the resources to compete with printer king Hewlett Packard, who at the time owned 60 percent of the market. Compaq sold its printer business to Xerox in 1994 for only $ 50 million.

Compaq Presario CDS 524 (about) and Compaq Presario 2240 (below): a showcase of a typical home computer from the 1990s.

Compaq then attempted to enter the $ 4 billion per year networking business in 1995 through a partnership with Cisco Systems. Pfeiffer invested a lot of effort and resources in setting up a network technology department.

From 1997 Compaq went on a shopping spree. First, it bought tandem computers for $ 3 billion. This was quickly followed by the acquisition of Microcom during the year and NetWorth in 1998 to strengthen the networking division.

Before the end of 1998, the company would buy the legendary Digital Equipment Corporation (DEC) for a record $ 9.6 billion. The DEC buyout was the largest merger in computer industry history, but it would prove to be a miserable decision.

On paper, Digital would provide Compaq with the leverage to gain prominence in the high-end corporate and enterprise market, but that has never changed. The new subsidiary had a chip manufacturing division, but Compaq had no interest in making silicon or competing against Intel, and DEC chips were not compatible with their computers. DEC also made minicomputers, which Compaq was also not interested in. Consulting was another profitable part of Digital’s business, but it just wasn’t what Compaq wanted. So it was a completely incompatible acquisition.

Compaq silicon photo. Image: Raimond Spekking

The DEC acquisition was probably the beginning of the end for Compaq. When one company takes over another, workspace cultures collide. There were a large number of layoffs and corporate morale deteriorated. The changeover led to missed deadlines and unmoved products. The company shipped lots of units to retailers who ended up dumping the excess at ridiculously low prices. Compaq had long helped its dealers absorb such discounts that the mistake cost the company millions. There were also conflicts with partners like Microsoft.

In 1999, the Compaq Board of Directors was of the opinion that Pfeiffer was no longer in contact with ordinary employees. New leadership should fix fences with partners and improve company morale. Board chairman Ben Rosen replaced Pfeiffer, a decision that the board unanimously approved.

Michael Capellas replaced Pfeiffer. Prior to his promotion, Capellas served briefly (seven weeks) as COO and previously Chief Information Officer. However, shift management turned out to be too little and too late.

The shares in Compaq had already fallen by almost 50 percent, which led to merger negotiations with rival Hewlett Packard. These discussions led to further conflicts within the company. The board was equally divided over the possible merger, and when it came to a vote the decision was just about to be made.

In 2002, HP absorbed Compaq for $ 42.2 billion. Compaq shareholders retained 36 percent of the merged company, while HP held the remaining 64 percent. Although more than $ 634.5 million in rewards were spent on retaining key personnel, there were still more than 15,000 layoffs after the contract was closed.

The Compaq brand continued to expand to lose even more market share to its competitors. Growth in the Compaq division slowed and Dell subsequently outperformed it in sales. So HP decided to add Compaq to its own line of computers as a low-end “budget” brand. This was, of course, akin to a snake eating its tail, as the Compaq line suffered from quality issues caused by in-house competition.

Compaq kept its name until the mid-2000s, but slowly HP began to rename its products under the HP Elitebook and HP Probook lines and until 2013 discontinued the Compaq line.

However, the mark didn’t go away entirely. In 2015, the Argentine company Grupo Newsan licensed the name for the production of Compaq laptops in Argentina. Two new Presario notebooks were produced in 2016. By 2019, Newsan completely gave up the Compaq brand.

TechSpot’s series is over, but not forgotten

The story of the major hardware and electronics companies that used to be leaders and pioneers in the technology industry but no longer exist today. We cover the most important part of their history, innovations, successes and controversies.

Masthead Credit: Compaq Presario 4540 operated by AMD K6 233 MHz by Trygve Finkelsen

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