Six years after its first product was sketched on the back of a pancake house napkin, Compaq Computer Corp. continues to take the computer industry by storm.
The Houston-based company last year posted sales of $1.2 billion--reaching the billion-dollar level faster than any other company in history and despite the overwhelming presence of industry giant IBM.
The company’s first product, a portable computer, was the result of a meeting over coffee involving founders Rod Canion, Bill Murto and Jim Harris.
All three worked for Texas Instruments Inc. and were brought together on a project to start a disk-drive unit. While with Texas Instruments, the trio decided to venture on their own.
“We didn’t really realize the fast track we would be on. We were moving quickly, but we didn’t fully understand how big the potential was,” said Canion. “When we were raising our initial venture capital, we told the investors that we thought $20 million or $30 million (in sales) the first year was possible and they laughed. That was unheard of. A company had never started with their first-year sales that high.”
Canion and his partners began designing their first personal computer in February, 1982. Sales began in 1983. When the year was complete, they had tallied sales of $111.2 million, an American business record.
Sales in 1984 hit $329 million as the company introduced what became one of the top-selling lines of desk-top business-personal computers within four months.
In 1985, Compaq climbed into the Fortune 500, making it the first company to do so in four years.
Role of David
Compaq’s sales records have continued because its personal computers are compatible with industry standards, meaning they support the largest base of business software programs and add-on equipment.
In an industry dominated by IBM, Compaq is playing the role of a modern-day David, challenging Goliath head to head. IBM has gone on to create a new standard with its Personal System-2 line, but many customers prefer to stick with the old one.
“I think we’re competing very well with IBM,” says Canion, 43, company president and chief executive officer.
Compaq countered an IBM product announcement in June with one of its own in what some analysts said will protect Compaq’s leadership in the 386-processor personal computer market. The new personal computers are based on Intel Corp.'s 80386 microprocessor.
Compaq’s Deskpro 386-25 is the world’s most powerful personal computer, according to company spokesman Bob Beach. And the Compaq Deskpro 386, Canion’s favorite, is the first personal computer to use a new, cheaper Intel chip.
IBM announced additional models of its Personal System-2 line, which included a 386 machine, but the IBM product won’t be available until September. Compaq machines have already been shipped.
Compaq, which already has 1 million square feet of space in six Houston buildings, in July announced plans for a $137-million expansion which will add 1.4 million square feet on 85 acres. The expansion makes room for up to 4,000 more employees, nearly doubling the present worldwide work force of 4,800.
“I kind of like the path we’re on,” Canion said of his company’s performance. “I don’t intend to make any major changes. We’ve developed a system for identifying new product opportunities and then delivering those new products to market quickly.”
Just last week, the company reported a 91% jump in profits in the second quarter, to $59 million, on sales of $457 million. For the first six months of the year, earnings more than doubled, to $105 million, on sales of $896 million.
Michael Davis, an analyst with Lovett Mitchell Webb & Garrison in Houston, doesn’t see Compaq’s growth or profits stumbling.
No Clouds at All
“I don’t see any clouds in the near-term future. I don’t see any clouds in general,” said Davis, who follows Compaq’s ventures.
In its third year, Compaq unveiled its Deskpro 286 model and portable 286 computers. It took IBM nine months to offer a similar product and by that time, Compaq was en route to unveiling a suitcase-size portable. The portable 386 and Deskpro 386-20 computers were introduced in September, 1987.
Eighty percent of the 386-based personal computers sold through U.S. dealers during 1987 were Compaq personal computers, according to Storeboard Inc. of Richardson, a consulting company that provides market information on the computer industry.
The survey somewhat exaggerates Compaq’s share because it misses IBM’s sales through its direct sales force. Compaq only sells its products through about 3,000 authorized dealers in 40 countries.
Attuned to Marketplace
“They primarily are attuned to the marketplace,” analyst Davis said. “They bring products the public wants and they do well because they are sold only through dealers. They go to great lengths to make sure their dealers are happy.”
Much of the credit for Compaq’s success goes to Canion, who has been responsible for overseeing its record-setting growth in all operational areas. Canion, who spent 13 years with Texas Instruments, also is responsible for recruiting high-level executives from other corporations. He credits Compaq’s success to teamwork among employees.
“We were naive in many ways and we stuck with some very basic philosophies,” Canion said. “We didn’t have all the answers and we used the capabilities of everybody to come up with good answers. . . . That evolved into our culture.”
Compaq was named one of the five best-managed companies in 1987 by Business Month magazine.
“What carried the day with the judges was not Compaq’s survival, or even the speed with which its sales homed in on the $1 billion mark, but that it accomplished these feats fighting mano a mano with IBM,” the magazine said in its December, 1987, issue.
Internationally, Compaq is establishing a network of manufacturing facilities with a portable and desk top production plant under construction in Erskine, Scotland, and a printed-circuit board assembly plant in Singapore, Compaq’s first satellite manufacturing facility outside the United States. The company’s main assembly operations are in Houston.
Co-founder Harris, who also spent 13 years with Texas Instruments, oversees the technical group that supports all product development. He led development of the original Compaq portable personal computer and was instrumental in engineering the company’s subsequent products.
Murto directed and coordinated overall sales operations and marketing before leaving the company in April, 1987, to pursue a religious vocation.
Compaq’s only setback so far came when the company set up a Dallas-based subsidiary, Telecommunications Corp., in 1984. Its main product was Telecompaq, which was used to line a telephone and a computer into a single unit. Production stopped last year after an investment of more than $20 million, analysts say.