The story
Founded by Jim Harris and Rod Canion on Feb 16, 1982.1
1982–1990
Compaq was founded on February 16, 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 $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.
Compaq differentiated its offerings from other IBM PC clones by not focusing mainly on price, but instead concentrating on new features such as portability and better technology, at prices comparable to those of IBM's PCs. Of nine PC AT clones InfoWorld priced in September 1985, Compaq's was the only one more expensive than the IBM original. In contrast to Dell 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 each Intel x86 processors.
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 1985, sales reached $504 million. The company shipped its 500,000th computer in April 1986. In 1987, Compaq hit the $1 billion revenue mark, taking the least amount of time to reach that milestone. By 1991, 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 1980s and early 1990s 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 IBM executive) 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 organise 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 was given increased responsibility and the title of vice president for sales and marketing.
Introduction of Compaq Portable
In November 1982, Compaq announced its first product, the Compaq Portable, a portable IBM PC compatible personal computer. It was released in March 1983 at $2,995. 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-compatible PC, 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 its PC. Furthermore, Microsoft had kept the right to license MS-DOS, the most popular and de facto standard operating system for the IBM PC, 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. Compaq also developed COMPAQ-DOS, its own MS-DOS variant.
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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. "Many industry observers think [Compaq] is poised for meteoric growth", The New York Times reported in March of that year. By October, when the company announced the Compaq Plus with a 10 MB hard drive, PC Magazine wrote of "the reputation for compatibility it built with its highly regarded floppy disk portable". The company bragged that it was more IBM compatible than IBM itself, such as the IBM Portable PC. 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.
Compaq Deskpro
On June 28, 1984, Compaq released the 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
In 1986, Compaq introduced the Deskpro 386, the first PC based on Intel's new 80386 microprocessor. Bill Gates of Microsoft later said
the folks at IBM didn't trust the 386. They didn't think it would get done. So we encouraged Compaq to go ahead and just do a 386 machine. That was the first time people started to get a sense that it wasn't just IBM setting the standards, that this industry had a life of its own, and that companies like Compaq and Intel were in there doing new things that people should pay attention to.
The Compaq 386 computer marked the first CPU change to the PC platform that was not initiated by IBM. Compaq had concluded, according to PC, that it could do so because "IBM's DOS standard is now bigger than IBM"; IBM could not make changes to the PC architecture it had created to hurt Compaq, without also obsoleting millions of real IBM PCs. An IBM-made 386 machine reached the market almost a year later, but by that time Compaq was the leading 386 supplier with 28% market share, compared to IBM's 16%.
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 (Micro Channel 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 renamed ISA —instead of licensing IBM's MCA. Prior to funding the prototype for 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 led an alliance with Hewlett Packard and seven other major manufacturers, known collectively as the "Gang of Nine", to develop EISA. Within a year, when it became apparent that MCA was dying, IBM also licensed the EISA standard. Thanks to Compaq's leadership, the concept of open-systems within the PC industry was preserved.
Compaq SLT and LTE
Development of a truly mobile successor to the Portable line began in 1986, the company releasing two stopgap products in the meantime, the SLT (Compaq's first laptop) and the Compaq Portable III (a lighter-weight, lunchbox-sized entry in the Portable line). In 1989, they introduced the LTE, their first notebook-sized laptop which competed with NEC's UltraLite and Zenith Data Systems's MinisPort. However, whereas the UltraLite and MinisPort failed to gain much uptake due to their novel but nonstandard data storage technologies, the LTE succeeded on account of its use of the conventional floppy drive and spinning hard drive, allowing users to transfer data to and from their desktop computers without any hassle. As well, Compaq began offering docking stations with the release of the LTE/386s in 1990, providing performance comparable to then-current desktop machines. Thus, the LTE was the first commercially successful notebook computer, helping launch the burgeoning industry. It was a direct influence on both Apple and IBM for the development of their own notebook computers, the PowerBook and ThinkPad, respectively.
Decline of IBM's offer
Before announcing EISA, Canion turned down an offer by William C. Lowe of IBM to instead cooperate on PC technology, essentially dividing the industry between the two companies. 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 [ISA market] Compaq is already IBM's equal in being seen as a safe bet", quoting a sell-side analyst describing it 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". A 1990 American Institute of Certified Public Accountants member survey found that 16% of respondents used Compaq computers, second only to IBM (23%). Epson (4%) and all other PC-compatible vendors had single-digit shares.
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 rumours 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, 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 "Compaq has 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 Compaq needed 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.
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 did not 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.
Introduction of Compaq Presario
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 utilise 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. Fortune noted in February 1996 that $1,000 invested in Compaq ten years earlier would be worth $22,000 by then, compared to $2,900 in Apple.
Compaq 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.
From Wikipedia’s article on Compaq, shared under CC BY-SA 4.0.4