Merger caps short, turbulent Compaq history

Compaq Computer lived the Hank Williams life. It lived hard, became famous and died before its time. (See full coverage on the acquisition: "HP-Compaq: What happens now?") The PC giant, like many others in the technology industry, started small. Compaq's three principals--Rod Canion, Jim Harris and Bill Murto--drew out their first product design on a restaurant placemat, and each later put up $1,000 (about £700) to start the company. Their idea: create a new kind of computer, a portable IBM-compatible PC. The device came to be known as the "luggable", and it took off with the public. Compaq sold about 53,000 luggables in its first year. The company joined the desktop PC fray in 1984 and three years later had sold a million PCs. By 1994, it overtook IBM to become the biggest PC maker in the world.

By 1997, Compaq was seen as an unstoppable PC juggernaut by some and was often the PC company Microsoft and Intel turned to when launching new initiatives. Then, in late January 1998, Compaq revealed even grander ambitions by acquiring Digital Equipment for $9.6bn in cash and stock. The Digital deal brought high-end servers, operating systems, chip technology and a worldwide service organisation into Compaq's product portfolio. Despite the public show of strength, things weren't going perfectly behind the stage. For years,

Compaq had discussed plans to sell more computers directly to customers and build PCs to order, like rival Dell Computer. Despite several initiatives, the efforts weren't paying dividends. In addition, Digital proved to be a difficult company to digest. Digital's services division, the crown jewel of the acquisition, was flat. Compaq also prolonged its decision on what to do about its Alpha server chip.

 A year later, Compaq was still grappling with the Digital acquisition when it announced that it was holding excess inventory. In a move that angered financial analysts, Compaq disclosed this information to a few analysts first and the larger community later. After some finger pointing, chief executive Eckhard Pfeiffer was ousted April 18, 1999, just one day after Compaq's Innovate99 customer conference, which the company used to detail its then-new e-business server strategy. Several executives followed Pfeiffer, while others revealed the state of the services merger, which wasn't going as smoothly as expected due to clashing cultures... more >>>