A fledgling in portable computers carries profits to the bank
In ads, Compaq Computer Corporation is celebrating. It claims it has had the most successful first year of sales in American business history. Claim or not, the record is impressive. In 1983, the first year it shipped any products, this portable-computer maker raked in a remarkable $111 million in sales. (Profits totaled $4.7 million.) More notable, this happened in a market where companies are constantly skidding into the breakdown lane.
Since Day 1, just two years ago, the founders have been thinking big. ''We structured ourselves from the very beginning as a Fortune 500 company,'' says Ken Price, the man responsible for Compaq's advertising and corporate communications. He is sitting behind his desk in a cramped, non-Fortune 500 -looking office, flanked by his bubble gum machine that dispenses M&Ms and his autographed St. Louis Cardinals baseball.
Compaq is still thinking big. New products are scheduled to come out this year. The company is in high gear, getting ready to start selling in Europe; Canada was brought into the fold earlier this year. A new $40 million headquarters and assembly complex will be sprouting in the woods next to Compaq's current head offices here in sprawling northwest Houston. In the meantime, Compaq is trying to lease extra space and fit more assembly lines into its present factory, a 20-minute drive away.
Compaq's success is due to a combination of factors, Mr. Price explains, but the most noticeable one is product. With its two types of portable personal computers, it is the leader in IBM-compatible computers - machines that can run IBM software. Analysts and dealers, though, remark that the strategy wheels must not become rusty at Compaq, especially now that IBM has announced its own portable computer.
''First, they should diversify to broaden their (product) base,'' says Barbara Isgur, a vice-president at Paine Webber Mitchell Hutchins. ''They should also maintain attention on their basic business and not let IBM sort of creep into that market. I surmise that's what's behind their price cut.'' Compaq has just lowered its price to dealers by $500. Dealers have been selling the product for around $2,495.
The company's relationship with its dealers is novel. Compaq only distributes through retailers, such as Computerland, Businessland, and Sears Business Systems Centers, focusing all training and promotional efforts on them. It doesn't compete with its dealers by having a its own direct sales force selling to corporations, for instance.
''I view that as a real big plus for me,'' says Ken Homer, a salesman at CPU Computer Centers in Burlington, Mass. ''I can sell a corporation a single IBM, maybe two. If they decide they want 100 of them, they go to IBM and get a 30 percent discount, and I lose a big account. But for Compaq, they have to come to me.''
Compaq is not your typical start-up company. ''Although they are a new company, they are not new to the business at all,'' says Mrs. Isgur. Compaq was formed by three senior managers from Texas Instruments who have since lured experienced workers from other big computer companies, including a 20-year veteran of IBM who was instrumental in marketing the IBM Personal Computer. This has enabled Compaq ''to avoid some of the pitfalls that you get in newer companies,'' Mrs. Isgur says.
Mr. Price, who also made the leap from Texas Instruments to Compaq, ticks off the benefits of all this experience. It has attracted strong investment in the company. It has resulted in thorough strategic planning. (''Our success wasn't luck,'' Price says.) It has ensured quality products.
Mr. Homer, the computer salesman, says he was ''impressed'' with Compaq's sales training course when the computer was loaded with software, held up, and then dropped on the floor. Everything was still in one piece and running. ''When you are in the airport, you don't have a sign on your computer that says, 'Hey, I'm fragile.' Compaq saw that need . . . . I think if you dropped the IBM (Personal Computer) on the floor, a lot of pieces would be sitting at your feet, '' Homer says.
The quality program is indeed impressive. Compaq tests components for quality before they arrive at the plant. Finished computers are stacked in huge racks, where they go through their own self-test for 48 hours. It looks like a miniature version of Times Square, with green screens blinking on and off at all hours. Various manual and electronic checkpoints are set up along the production line, too.
On the way to the factory - zipping along in his new convertible Mercedes sports car - Price talks about Compaq's future. Compaq will survive, he says, because it is oriented toward the market's needs and does not try to push new technology on a market that isn't ready for it. Should IBM go proprietary with its personal computer products, there is still a huge library of IBM software to support the thousands of Compaqs already on desktops. And, Price says, Compaq doesn't think of itself as just a portable-computer maker or a company eternally chained to IBM. New products are on the way.
This is all true, ''but!'' says Tom Kucharvy, a research director at the Yankee Group, a Boston firm specializing in high-tech research and consulting. Compaq products beat the new IBM portable in weight, size, and graphics capability, but ''people in large corporations tend to prefer IBM when it's available.''
He also says that the IBM-proprietary scenerio is not just a matter of relying on the existing software library. Should Compaq choose to keep up with ''any degree of compatibility, it would take at least eight months to react.'' And one never knows what kind of effect that could have in a market moving as fast as this one.