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Compaq: Gone But Not Forgotten

The year was 1982 and computers had finally made the jump from machines that took up a full room to something that could fit on a desk. But they were still far from portable, so three entrepreneurs decided to change that.

Started with $3,000, Rod Canion, Jim Harris, and Bill Murto founded a little company called “Compaq,” a portmanteau of the words “compatibility” and “quality.”

The name represented the company’s vision, which was to take on the behemoth known as International Business Machines (IBM) and to make an IBM-compatible PC that was as powerful their top-of-the-line desktop unit but in a smaller, more portable form factor.

The company’s first entry into the market was the Compaq Portable in 1983.

A Portable, IBM-compatible PC

The Compaq Portable was about the size of the typical PC towers that we have today, but the all-in-one contained everything one would need for computing on the go, including a 9-inch monochrome monitor and a snap-out keyboard. The unit could fit in the carry-on luggage compartment on an airplane, which was Compaq’s intent.

Powered by an Intel 4.77MHz 8088 processor, the Compaq Portable had 128k of RAM and two configuration options for storage – either two double-sided double-density (360KB) 5.25-inch floppy drives, or one floppy drive and a 10MB hard drive. It ran MS-DOS with a proprietary BIOS called Compaq DOS 1.13.

Computing has become ubiquitous to the point that even those who remember the early days look back in amazement at how far we have come in only 40 or 50 years.

The Compaq Portable debuted with a hefty price tag of about $3,600 (a tad over $11,000 in 2024 dollars). The system was way out of the range for an average user, but it was a steal for business professionals who were always on the go.

Compaq sold more than 53,000 units in its first year, generating a record-breaking $111 million in revenue. Record sales continued with the portable PC selling $329 million, and $504 million in 1983 and 1984.

Rapid Growth and Industry Impact

The momentum of those first few years made Compaq a leader in the PC industry. In 1986, the company broke another record by becoming the youngest company listed in the Fortune 500, right after the Compaq Portable II’s release. By 1987, the computing startup had reached over $1 billion in revenue. At this time, one of the founders, Bill Murto, left his position as senior VP of sales. Despite his departure, the company continued to soar.

A large part of Compaq’s success came thanks to Rod Canion’s leadership. Canion cultivated a relaxed company culture that attracted some of the industry’s top talent. By 1991, Compaq had reached over $3 billion in sales and was in fifth place in market share.

However, 1991 turned out to be a tumultuous year for the company. Differences in vision between CEO Canion and the board of directors resulted in the resignation of both Canion and his co-founder and SVP of engineering, Jim Harris.

The conflict arose in part because competitors such as Dell, AST Research, and Gateway had entered the market, offering less expensive alternatives to Compaq computers. The company’s growth dipped to 4 percent versus an industry average of 7 percent.

The board wanted to change things up, but Canion insisted on continuing to do what had made the company famous – selling high-end business machines to enterprise dealers at a wide profit margin. After Compaq suffered its first quarterly loss to the tune of $71 million and company stock had dipped by over 66 percent, Canion was ousted. Harris and four other long time executives followed him five weeks later.

The Compaq Presario: Pivoting to Consumer Markets

COO Eckhard Pfeiffer became the new CEO and led the company in a new direction. Up to this point, Compaq had focused on marketing and producing systems like the Compaq DeskPro and SystemPro intended for the enterprise market.

The Compaq Presario was one of the first consumer PCs that sold for under $1,000, it was a hit.

Pfeiffer’s vision was to introduce affordable PCs to the average consumer. The first of these was the Compaq Presario. It was one of the first PCs introduced to the consumer market for under $1,000, and it was a hit.

To reach these new low prices, Compaq was the first of the big PC companies to start using chips from AMD and Cyrix, a practice that eventually became an industry standard.

This new strategy triggered a price war that put some other competitors, including Packard Bell and AST Research, out of business. It also propelled Compaq from its third-place spot behind Apple in 1993 into the second-biggest PC manufacturer. IBM still held the top spot, but not for long.

By 1994 Compaq had surpassed the king of the business machines. Again, much of this success had to do with bringing down the costs of entry. However, Compaq’s reign was to be short-lived after a string of bad decisions and acquisitions.

A Record of Bad Acquisitions

The company started manufacturing printers in 1989 and those were well received, but Pfeiffer did not feel that Compaq had the resources to compete with printer king Hewlett Packard, which owned 60 percent of the market at the time. Compaq sold off its printer division to Xerox for a mere $50 million in 1994.

Compaq Presario CDS 524 (above) and Compaq Presario 2240 (below): a showcase of a typical home computer from the 1990s.

Compaq then attempted to get into the $4 billion-a-year networking business by partnering with Cisco in 1995. Pfeiffer spent much effort and resources, building up a network engineering division.

Starting in 1997, Compaq went on what seemed to be a buying spree. First, it snapped up Tandem Computers for $3 billion. That was quickly followed by picking up Microcom later that year, and NetWorth in 1998 to bolster its networking division.

Before the end of 1998, the company would buy up the legendary Digital Equipment Corporation (DEC) for a record-shattering $9.6 billion. The DEC buyout was the largest merger in the history of the computer industry, but it would turn out to be an abysmal decision.

On paper, Digital would provide Compaq the leverage to gain notoriety in the high-end corporate and enterprise market, but that never panned out.

On paper, Digital would provide Compaq the leverage to gain notoriety in the high-end corporate and enterprise market, but that never panned out. The new subsidiary had a chip making division, however Compaq had no interest in making silicon or competing against Intel, and DEC chips were not compatible with its computers.

DEC also made minicomputers, something that Compaq also was not interested in doing. Enterprise consulting was another of Digital’s profitable divisions, but simply not something Compaq wanted. So it was an all-around incompatible acquisition.

Compaq silicon photo. Image: Raimond Spekking

The Decline of Compaq

The DEC acquisition was arguably the beginning of the end for Compaq. As it goes, when one company takes over another, workspace cultures collide. A large number of layoffs occurred, and company morale tanked. The shakeup led to missed deadlines and unmoved products.

Compaq was shipping too many units to retailers, who ultimately had to dump the surplus at ridiculously low prices. The company had long supported its dealers by absorbing such markdowns, so the mistake cost the company millions. It also created conflicts with partners such as Microsoft.

In 1999, Compaq’s board of directors felt that Pfeiffer had become out of touch with rank-and-file employees. New leadership was in order to mend fences with partners and improve the company’s morale. So board chair Ben Rosen moved to replace Pfeiffer, a decision the board unanimously approved.

Michael Capellas replaced Pfeiffer. Before his promotion, Capellas briefly (seven weeks) served as COO and as chief information officer before that. However, shifting management proved to be a case of too little, too late.

Shares in Compaq had already dropped nearly 50 percent, leading to merger negotiations with rival Hewlett Packard. These talks led to further conflict within the company. The board was equally divided regarding the possible merger, and when it came to a vote, the decision just barely passed.

The HP Merger

In 2002, HP absorbed Compaq for $42.2 billion. Compaq shareholders retained 36 percent of the merged company while HP held the remaining 64 percent. Despite doling out more than $634.5 million in bonuses to retain key personnel, there were still more than 15,000 layoffs after the two companies finalized the deal.

Furthering tension saw the Compaq brand losing even more market share to its competitors.

Growth in the Compaq division dwindled, and Dell subsequently surpassed it in sales.

So HP decided to pull Compaq into its own computer line as a low-end “budget” brand. Of course, this was akin to a snake eating its tail as the Compaq line suffered quality issues caused by the intra-company competition.

Compaq still retained its name through the mid-2000s, but slowly HP began rebranding its products under its Elitebook and Probook lines, and by 2013 HP discontinued the Compaq line.

The brand has not completely gone away, however. In 2015, Argentinian company Grupo Newsan licensed the name to manufacture Compaq laptops in Argentina. It produced two new lines of Presario notebooks in 2016. By 2019. Newsan had abandoned the Compaq brand. Other such licensing deals have been struck in the last few years, where third parties have used the brand to launch (usually low-end) electronics. This includes Smart TVs in India and Latin America, along with laptops in Brazil and generic Android tablets in various Latin American countries.

TechSpot’s Gone But Not Forgotten Series

The story of key hardware and electronics companies that at one point were leaders and pioneers in the tech industry, but are now defunct. We cover the most prominent part of their history, innovations, successes and controversies.

Masthead credit: Compaq Presario 4540 powered by AMD K6 233 MHz by Trygve Finkelsen

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