Number three in the world
Compaq Computer is the world's third-largest computer company. The Houston-based company designs, develops, manufactures and markets hardware, software, solutions and services in more than 200 countries. In September 2001, the company agreed to merge with Hewlett Packard. Compaq shareholders have approved the $20 billion deal, but votes from HP's shareholders are still being counted. The merger, if approved, is expected to be completed within the first half of 2002. The combined company would just trail IBM as the world's largest computer company.
A bottle-rocket start
Founded in 1982 by Texas Instruments executives Rod Canion, Jim Harris and Bill Murto, Compaq Computer boasted $111 million in sales in its second year in business. The reason for the company's success was simple: it offered computers more powerful than IBM's for about the same price. Compaq kept its overhead costs low and boosted sales by granting exclusive dealership rights to stores across the country. In early 1988, sales had skyrocketed to $1.2 billion (Compaq set a record for reaching that level faster than any other company). By 1995, Compaq had attained the top spot in the worldwide PC market.
Compacting Compaq
Things were running smoothly for Compaq until mid-1998, when inventory began to grow and Dell Computer was gaining ground with its built-to-order program. Compaq sales leveled off and the company struggled to redevelop its manufacturing and distribution process. Then in June 1998, Compaq acquired Digital Equipment for $8.7 billion, creating the second-largest computer company in the world. After paying $5.4 billion to finance the merger, Compaq announced it would eliminate overlap by gradually cutting thousands of jobs worldwide - mostly from Digital's end - through plant closings and consolidations. When 1999 rolled around, Compaq's stock had dropped and profits were down.
Pfeiffer is out, Capellas is in
Not only had Wall Street lost faith in CEO Eckhard Pfeiffer, but so had Chairman Ben Rosen. In April of 1999, Pfeiffer was forced to resign. One of the key problems was his refusal to institute a built-to-order model to compete with Dell and Gateway. Compaq named Michael Capellas as its new CEO in June 1999. In an attempt to restore the glory days of the 1980s and early 1990s, Capellas launched a major restructuring effort that included cutting over 17,000 employees and shutting down several plants.
Playing catch-up
In January 1999, Compaq finally got on the e-commerce bandwagon (way behind rivals like Dell and IBM) with the purchase of Shopping.com, an online retailer and e-commerce software maker. The company launched a portal site combining the online shopping service with its Alta Vista search engine (acquired along with Digital Equipment). Since then, Compaq has focused on targeting e-businesses and becoming known as an Internet company, using the name AlphaServer. Compaq's plan also meant combining Compaq.net Internet access service with Microsoft's MSN, in addition to setting aside over $1 billion dollars for Internet-related business.
What next?
In September 2001, Hewlett Packard announced plans to buy Compaq. In March 2002, the Federal Trade Commission closed its investigation of the merger, allowing the two companies to proceed. Compaq shareholders approved the deal later that month, but the votes from Hewlett Packard shareholders are still being counted. It's expected that the combined company, if approved, would have revenue close to that of IBM, the world's largest computer company. The deal would boost HP's services business (which it has been trying to grow) and give it more than 80% of the U.S. retail PC market. Analysts say layoffs will be inevitable.
