Compaq Computer Corp - Rapid Growth As A Personal Computer Manufacturer

RAPID GROWTH AS A PERSONAL COMPUTER MANUFACTURER

Joseph R. Canion, James Harris, and William H. Murto left their management positions with Texas Instruments in 1982 to found a PC manufacturing business. The new firm, named Compaq Computer, was partly funded by high technology venture capitalist Sevin-Rosen Partners. An initial public offering the next year secured $67 million in additional capital. Sales totaled $111.2 million, a record for first full-year sales of a U.S. business.

A major component of the fledgling company's early success was its ability to bring new products to market in roughly six to nine months, must faster than the timeframe by which much larger competitors like IBM Corp. operated. In fact, the industry average for turning a concept into a product on the shelves was 12-18 months. Annual revenues in 1984 reached $329 million. Nearly 150,000 Compaq PCs were shipped that year, and the firm established sales units in France, Germany, and the United Kingdom.

In 1985, Intel agreed to form a joint venture with Compaq to develop a new microprocessor. The resulting Deskpro 386 topped the speed of IBM's fastest PC threefold. Less than four years after its inception, Compaq set another record by becoming the youngest firm to ever join the Fortune 500. International expansion continued with the establishment of a printed circuit board assembly facility in Singapore and a manufacturing plant in Scotland. As the 1980s came to a close, Compaq found itself the second-largest maker of PCs for European businesses.

Standard & Poor's Composite Index of 500 included Compaq in 1988. Compaq's SLT/286 laptop computer, shipped that year, was an overnight success, and the firm unveiled the Compaq LTE, its first notebook PC, in 1989. Growth continued with the purchase of the Stirling, Scotland-based Wang facility, which soon would house service operations. Compaq's efforts to enhance the speed and ability of its machines to handle complex applications led it to develop the Extended Industry Standard Architecture (EISA), which the firm began using in its servers by the turn of the decade.

Geographic expansion efforts extended to Latin America in the late 1980s. International operations were securing more than 50 percent of annual revenues by 1990. That year, new units were established in Austria, Finland, and Hong Kong. Compaq also reached licensed dealer agreements in Argentina, Germany, Hungary, Mexico, Trinidad, and Yugoslavia. The firm made its first inroads into the Asian PC market, particularly in Japan, in 1991.

Although new product development in the early 1990s continued with the launch of Deskpro/M computers and EDS, the industry's first worldwide systems-integration product, the firm struggled with organizational and managerial issues. As a result, Compaq initiated a restructuring that included laying off 14 percent of its employees and consolidating its operations into two product groupings: the Personal Computer Division, which accounted for 90 percent of sales, and the Systems Division. When Compaq posted a loss of $70 million in 1991, company co-founder Canion was ousted as CEO and succeeded by an executive vice president, Eckhard Pfeiffer. During the management shakeup, the last remaining company founder, Harris, also left Compaq.

Although layoffs continued, for the most part Compaq considered its reorganization complete and introduced 16 new products. Throughout the early and mid-1990s, the firm began scattered efforts to move into new markets, including developing its first printer products and inking a video conferencing joint venture agreement with PictureTel. Completing its largest deal to date, Compaq acquired Tandem Computers Inc. in 1997 for $4 billion. Tandem's server technology allowed Compaq to better meet the needs of its business clients, who were seeking more fully integrated products from PC makers, and also set the stage for future e-commerce ventures. A year later, Compaq topped the Tandem deal by paying $8.45 billion for Digital Equipment Corp., gaining access to that company's computer services and data storage operations.