What happened to Compaq?

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.

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.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"