In August 1981, IBM® introduced the first IBM Personal Computer, birthing the new PC industry. In February 1982, three senior engineers from Texas Instruments® sat down to dinner at House of Pies on Westheimer road. ROD CANION, JAMES HARRIS and WILLIAM MURTO each had $1,000 to invest. They discussed managing a Mexican restaurant, making storage devices for minicomputers or, perhaps, a beeping device to locate lost items. Instead, on the back of a placemat, they did their initial sketch of an IBM-compatible PC that was small enough to be transportable. Ben Rosen, a noted venture capitalist, invested $2.5 million and became the company’s first Chairman. Compaq® Computer Corporation was born.
With a marketing strategy that bred loyalty among their sales team and retail chains, Compaq grew rapidly and spread across 150 wooded acres in the suburbs northwest of Houston. Sales escalated to more than $500 million in 1985 when Compaq began trading on the New York Stock Exchange, and in 1986 it became the first company in history to join the Fortune 500 list in only its fourth year of existence. Expansion into Europe and Asia followed quickly, and Compaq ranked 157 on the Fortune list in 1989, with sales of over $2 billion.
Compaq’s growth through the later 1980s mirrored that of the PC industry as a whole. Compaq consistently surpassed industry benchmarks, however, and much of that performance can be attributed to its rapid product development cycle. It was usually first to market as new versions of standard components were introduced. By 1994, Compaq had passed IBM to become the world’s largest PC manufacturer.
James Harris | Rod Canion | William Murto | 1982
Such growth did not come without problems. In 1991, after posting sales of $3.6 billion and profits of $455 million in 1990, Compaq announced a decline in numbers and a $70 million third quarter loss. Canion resigned as CEO and was replaced by Eckhard Pfeiffer. Compaq quickly regained footing and in 1992 announced a remarkable 16 new products, including its first printer. The product line was expanding in both directions, with lower cost models aimed at the home-consumer market as well as higher-end machines designed for the corporate server market.
Compaq embarked on a bold acquisition plan in the late-1990s. In 1997, it paid $4 billion to acquire Tandem Computer Incorporated. Then, in January 1998, Compaq acquired Digital Equipment Corporation® for $8.55 billion. While these acquisitions addressed Compaq’s need to diversify and reduce reliance on its core PC market, Compaq was swallowing two large companies in a short period of time. Employee totals jumped, with 22,000 consultants being added in the DEC deal alone, plus additional sales, manufacturing and administrative personnel. Layoffs commenced with 5,000 employees being severed almost immediately. Revenues increased dramatically, shooting to $31 billion in the combined 1998 statement. Compaq’s core PC/peripheral business, however, showed signs of serious erosion from foreign and domestic competitors.
Compaq struggled with merger issues for the rest of the 1990s. It badly missed earnings targets in the first quarter of 1999, resulting in more job cuts, a 22 percent decline in share price and the ouster of Pfeiffer as CEO. He was replaced by Michael Capellas, Compaq’s CIO. Although Compaq made a concerted effort to integrate Internet technologies within almost all aspects of its product and business planning cycles, factors in the fast-moving marketplace vastly degraded the value of these investments.
Domestic and international competition continued to plague Compaq. In 2001, Dell Computer® surpassed Compaq in PC/Workstation sales. Asian competitors offered stiff pricing pressure that lowered margins for all industry participants. Facing a difficult outlook, Compaq agreed to a $21 billion merger with Hewlett- Packard Corporation in 2002. Carly Fiorina, HP’s Chairwoman and CEO, led the combined companies. Layoffs eliminated over 16,000 jobs in 2002, with another 5,000 attributed to the merger in 2003. By 2003 Compaq ceased to operate as a separate company and all merger functions had been completed.
Compaq Portable the first portable IBM PC compatible
Reprinted from the Texas State Historical Association’s Handbook of Houston, a project in cooperation with the Houston History Alliance. For more information, visit www.HoustonHistoryAlliance.org.