Compaq was an American information technology company founded by Rod Canion, Jim Harris, and Bill Murto with just $3000 in 1982. Compaq rose to prominence in the 1990s as the largest supplier of PC systems after becoming the first company to clone an IBM PC legally and successfully. The company was acquired by Hewlett Packard in 2002 for $24.2 billion. Compaq products were rebranded as part of a new range of lower-end HP computers and the Compaq brand was discontinued in 2013.
| Aspect | Explanation |
|---|---|
| Founding and Early Success | Compaq Computer Corporation was founded in 1982 by three former Texas Instruments executives: Rod Canion, Jim Harris, and Bill Murto. The company’s goal was to produce a portable PC that was 100% IBM-compatible. In 1983, Compaq released its first product, the Compaq Portable, which became a success due to its compatibility with IBM’s PC software and expansion capabilities. This success set the stage for Compaq’s rapid growth and its reputation as a leader in the PC industry. |
| Market Dominance and Innovation | Compaq’s ability to produce IBM-compatible PCs allowed it to capture a significant share of the PC market. The company was known for its innovative engineering and quick development cycles. It introduced several groundbreaking products, including the Compaq Deskpro 386, which was the first PC to use Intel’s 80386 microprocessor. Compaq also played a role in popularizing the laptop computer with its Compaq LTE series. The company’s market dominance and reputation for innovation made it a force to be reckoned with in the PC industry. |
| Challenges and Competition | Despite its early success, Compaq faced growing competition in the PC market. Rivals like Dell and Gateway challenged Compaq’s market share by adopting direct sales models and cutting costs. Compaq’s growth also led to increased complexity, and it faced challenges related to supply chain management. In the late 1990s, the company’s profitability declined, and it had to restructure its operations. Compaq also faced competition in the server and enterprise computing sectors. |
| Merger with Hewlett-Packard (HP) | In 2002, Compaq announced its merger with Hewlett-Packard (HP) in a deal valued at approximately $25 billion. The merger was aimed at creating a stronger competitor in the PC and enterprise computing markets to better compete with IBM. The merger, however, was met with skepticism and resistance from some shareholders and analysts who questioned its potential benefits. The merger was completed later that year, creating a new entity known as HP. |
| Legacy and Impact | Compaq’s legacy is twofold. First, it was a pioneer in the PC industry, helping to establish the standard for IBM-compatible computers. Its early success demonstrated that compatibility with IBM’s software was critical for PC manufacturers. Second, while Compaq as a brand no longer exists, the merger with HP resulted in the formation of one of the world’s largest technology companies. HP continued to produce a wide range of products, including PCs, printers, and servers. The Compaq brand name was eventually phased out, but its influence on the PC industry remains. |
Background
Compaq was an American information technology company founded by Rod Canion, Jim Harris, and Bill Murto with just $3000 in 1982.
The company began as a developer and seller of computers and related products and services, with the founders having the vision to produce personal computers that were portable and had the power to compete with IBM machines.
Compaq rose to prominence in the 1990s as the largest supplier of PC systems after becoming the first company to clone an IBM PC legally and successfully. In the process, it became the youngest ever Fortune 500 company after just four years in operation.
Less than 20 years after the Compaq story began, the company was acquired by Hewlett Packard in 2002 for $24.2 billion. Compaq products were rebranded as part of a new range of lower-end HP computers and the Compaq brand was discontinued in 2013.
There are several reasons for the rise and very swift fall of Compaq. Let’s take a look at them below.
DEC merger
Compaq acquired the Digital Equipment Corporation (DEC) for $9.6 billion in 1998 – at the time the largest merger ever seen in the computer industry.
In theory, the arrangement would allow Compaq to leverage the corporate and enterprise market. But the most profitable elements of DEC were those Compaq had no interest in pursuing. These included silicon chip manufacturing, minicomputers, and enterprise consulting. Chip manufacturing in particular was not a good fit for Compaq because the chips were not compatible with its computers.
The DEC acquisition marked the beginning of the end for Compaq. Differences between the two companies resulted in a clash of workplace culture, leading to redundancies and a drop in morale. A lack of efficiency lead to missed deadlines and products which could not be sold. Retailers with a glut of Compaq stock were forced to sell at ridiculously low prices, which angered partners such as Microsoft.
Increased competition
With company executives managing the fallout from the DEC acquisition, several competitors took market share away from Compaq in the late 1990s.
Companies such as Dell, Gateway, HP, and IBM took advantage of an increase in computer sales as consumers became fearful of the Y2K bug. Compaq failed to capitalize on this trend, preoccupied with a need to establish a direct-order business to compete with Dell in particular.
Two years later, Dell surpassed Compaq for total PC sales.
Dot-com bust
Further adding to the surplus of Compaq stock on the market was the bursting of the dot-com bubble.
The company lost a lot of business from dot-com organizations who were traditionally its biggest customers. When many of these organizations were liquidated, a glut of used and unused products resulted. Compaq had to compete with its own products until the market recovered and absorbed the surplus.
Intel
Intel was the final nail in the coffin for Compaq, with the former creating a marketing campaign arguing that the CPU was the most important part of a computer.
This argument caught on, so Intel began manufacturing chipsets and motherboards for businesses such as Dell to use in their own systems. This meant computers from Compaq’s competitors were cheaper with essentially the same componentry, and Intel was large enough to beat the company on economies of scale.
With very little differentiating a Compaq computer from another brand, the company lost market share and became an attractive takeover target for HP.
Key takeaways:
- Compaq was an American developer and producer of computer products and services. After strong initial success, the company was acquired by HP in 2002 with the Compaq brand retired in 2013.
- Compaq’s short-sighted acquisition of DEC provided the catalyst for its decline. While the company was dealing with the ramifications of the acquisition, competitors such as Dell and Gateway increased their market share.
- Compaq also experienced a loss in revenue after the dot-com bubble burst. This was exacerbated by the standardization of chipsets and motherboards by Intel.
Quick Timeline
- Compaq was founded in 1982 as an American information technology company with the vision to produce portable personal computers that could compete with IBM machines.
- Compaq became the largest supplier of PC systems in the 1990s after legally and successfully cloning an IBM PC, making it the youngest Fortune 500 company at that time.
- In 1998, Compaq acquired Digital Equipment Corporation (DEC) for $9.6 billion, but the merger led to clashes of workplace culture and inefficiencies, marking the beginning of Compaq’s downfall.
- Increased competition from companies like Dell, Gateway, HP, and IBM eroded Compaq’s market share in the late 1990s.
- The bursting of the dot-com bubble resulted in a surplus of Compaq stock in the market as many dot-com organizations went out of business.
- Intel’s marketing campaign emphasizing the importance of the CPU and its decision to manufacture chipsets and motherboards for competitors like Dell further hurt Compaq’s market share.
- In 2002, Compaq was acquired by Hewlett Packard (HP) for $24.2 billion, and the Compaq brand was eventually discontinued in 2013.
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