Why did Compaq fail?
In the 1980s and 1990s Compaq was a high-flying PC brand. Compaq was created the first successful and fully legal IBM PC clone. Besides that, it created to set records as a startup, highly regarded desktop PCs and servers usurped IBM as the standard bearer in the PC market, and made sturdy. HP owns today it’s just a trademark that and doesn’t use. I found why did Compaq fail?
I got were several reasons why Compaq failed, but one stands taller than the others.
Why did Compaq fail? The ill-fated DEC merger
Included 15 years at the top of the PC industry Compaq had a storied life, but in 2001 its fall came swiftly. The reason Compaq failed because it got distracted.
When it merged with Digital Equipment Corporation, or DEC, the beginning of the end came for Compaq. While IBM faltered, Compaq was thriving. In the Compaq figured that if it could acquire a services business, it could thrive even more which was the biggest thing that kept IBM afloat in the early 1990s. With a thriving services business DEC was a legendary company. On some level, it looked like a good match.
DEC had a whole bunch of stuff Compaq didn’t want. It’s the problem. DEC made computer chips. Its dependence on Intel Compaq was happy to invest in chipmakers to lessen, and occasionally use CPUs from AMD and even Cyrix, but Compaq didn’t want to make chips itself. Besides that, DEC’s chips weren’t Intel x86-compatible, so they weren’t useful for Compaq’s existing businesses. Minicomputers was made by DEC. Compaq made its name by getting people to buy Intel-based servers instead of minicomputers, DEC also made refrigerator-sized Unix systems. People was pushed by Compaq to buy Intel-based systems running Windows NT instead of Unix. Unix business and The minicomputer represented a change of direction.
Compaq spent $9.6 billion to acquire DEC in 1998. The acquisition helped Compaq jump from number 42 in the Fortune 500 index to number 28, putting it a few spots ahead of Intel.
Trouble in paradise.
Some parts of DEC, Compaq divested it didn’t want. Before the merger completed Intel had agreed to buy the remainder of the chipmaking business in 1997. The same year DEC also sold off its printer business to Genicom. The Altavista search engine Compaq was sold for $2.3 billion. Compaq merged the competing product lines. But the combined company lacked direction. DEC was a conflicted company in many ways. The combination of DEC and Compaq was more so. Fear of Compaq’s commitment to those technologies were just as happy to buy Intel-based hardware from someone like Dell as they were from Compaq.
Because of A series of scandals forced various executives out in 1999 Companies looking to migrate off DEC’s legacy VMS or Unix systems. CFO Earl Mason disclosed financial results to some analysts but not others and he resigned under fire. CEO Eckhard Pfeiffer soon followed.
Compaq’s computer sales dropped in 1999 while sales at Dell, Gateway, HP, and even the fading IBM increased was the biggest problem. What were they hiding? Companies were buying a lot of computer equipment, thanks to the Y2K issue. Compaq failed to capitalize it. Its efforts to build a direct-order business were lackluster at best. It recognized a need to sell direct to compete with Dell. Dell passed Compaq to lead the industry in PC sales in 2001.
The dot-com bust
Often known as the dot-com bubble and bust, hurt Compaq in two ways. The rapid demise of a large number of Internet startups. They spent their venture capital and IPO money, the dot-coms were buying large amounts of equipment. Their demise meant Compaq lost a large number of big customers. Some of which had never been used. Compaq had to compete with its own product until the market absorbed the surplus. Their liquidations also flooded the market with a lot of surplus equipment.
Intel
One final reason that Compaq failed was Intel. Compaq’s PCs were less expensive than IBM, but they weren’t cheap. Intel’s marketing stressed the CPU was more important than who made the rest of the computer. That wasn’t necessarily true, as a Packard Bell computer with an Intel CPU in it was still a piece of junk, while a Compaq computer with an AMD CPU in it wasn’t any worse than a Compaq computer with an Intel CPU in it. But Intel started producing chipsets and motherboards, stabilizing the PC field. Once this happened, other companies could just buy motherboards and CPUs from Intel and put them in their own cases. The resulting computer was cheaper than a Compaq and almost as good, and Intel was large enough to meet or beat Compaq’s economies of scale.
Compaq’s rivals could just outsource their engineering to Intel, beat Compaq’s price, and the resulting system was close enough in quality that consumers didn’t mind. Compaq started buying motherboards for its lower-cost systems to compete, and that created a self-fulfilling prophecy. When Compaq used commodity motherboards, there really wasn’t much difference between a Compaq and any other system.
Compaq fought it off for a while, but eventually the weight of the DEC acquisition and the damage the dot-com bust did to its share price made Compaq an attractive takeover target.
The end of the line for Compaq
Compaq’s stock was trading at about 1/4 what it had been trading for at the time of the DEC acquisition by 2002. A big fall from its $43 billion market capitalization at the end of 1999HP acquired Compaq that year for $24.2 billion.
It too proved largely disappointing to analysts expected big things from the Compaq-HP tie-up but. Analysts point to the Compaq acquisition as the start of HP’s own struggles HP couldn’t solve Compaq’s problems. HP splitting itself eventually leaded .
Since the services division was a big motivator for HP as well It likely would have gone better for both companies if HP had acquired DEC. HP could have bought DEC for much less than it paid for Compaq. Much like Dell did, Compaq likely could have survived the decade on its own. Which would have helped it to compete with Dell’s direct-order business Compaq could have gone it alone or acquired Gateway. Compaq did attempt to buy Gateway for $7 billion and was turned down. In 1997 Compaq’s mind that thought crossed.
It’s easy to see how a buy-low on DEC looked attractive after failing to buy high on Gateway. For both companies but a Compaq-Gateway tie-up likely would have been better.
If Compaq had been patient, it could have tried again and probably done better Gateway itself ran into trouble. Lastly, the benefit of hindsight was no pressure from shareholders wanting growth this quarter for two years from now.
