FINDING ITSWAY BACKHOME
Nearly 20 years after Compaq-HP deal, HPE returns to Houston
Adirect line runs between the recent announcement that Hewlett Packard Enterprise will relocate its headquarters to Houston and a parade across a corporate campus in northwest Harris County in May 2002.
On that day, shortly after the completion of the contentious merger between what was then Hewlett Packard and Compaq had closed, HP Chief Executive Carly Fiorina and her Compaq counterpart, Michael D. Capellas, led as many 100 Compaq and HP employees through hallways and across the overhead walkways, known as “the spine,” that connected the building.
The parade may have been aimed at unifying the cultures of two proud, former competitors. But to many Compaq employees, it seemed more of a victory lap for Fiorina.
It also launched a long, circuitous journey that would eventually bring a Compaq successor back to Houston. For the first time in 18 years, a major computing technology company calls Houston home, and parts of what was once Compaq are embedded
in the DNA of Hewlett Packard Enterprise.
At its peak, Compaq was the city’s biggest private-sector employer, with 17,000 workers in Houston. By comparison, HPE has 2,600 people here, a number that may grow as new hires are brought
aboard. The Greater Houston Partnership estimates that HPE will be the sixth-largest Fortune 500 company in Houston.
“We have not had a non-energy, Fortune 500 company relocate to Houston since 1998, when Waste Management decided to come here,” said Patrick Jankowski, senior vice president of research at the GHP.
World’s PC capital
There was a time when Houston was the personal computer capital of the world.
Compaq, in its mid-1990s heyday, boasted of being the No. 1 manufacturer and seller of PCs. It was the youngest company ever to rank among the Fortune 500, achieving that four years after its 1982 founding. It’s valuation also reached $1 billion faster than any other U.S. company at the time.
Compaq found a way to legally reverse engineer the IBM’s low-level software, making Compaq’s system more compatible with software initially designed to work on the IBM PC. The company’s first product was a portable clone of the IBM PC, about the size of a suitcase and heavy enough to be nicknamed a “luggable.”
Founded by former Texas Instruments engineers Jim Murto, Jim Harris and Rod Canion, who became its first chief executive, Compaq initially sold its systems to businesses through third-party middlemen and computer stores. As the company grew, it found
“(W)hat may follow is that we’ll get companies to look and say, ‘Well, what’s going on in Houston that we should be looking into it as well?”
Patrick Jankowski, senior vice president of research at the Greater Houston Partnership
competitors nipping at its heels with a more efficient business model, one that sold computers directly to businesses and consumers, allowing them to cut costs and undercut Compaq.
Those companies, including Gateway 2000 and Round Rockbased Dell, would bedevil Compaq throughout its existence.
A slump in the early 1990s, partly blamed on direct-sales competitors, cost Canion his job as CEO, and he was replaced by Eckhard Pfeiffer, the company’s chief operating officer. Under Pfeiffer, Compaq began selling PCs and servers directly, while maintaining relationships with resellers. It also began to sell bigger systems.
In 1997, Compaq bought Tandem Computers for $3 billion in stock. Tandem made high-end servers that could be clustered so if one failed, the others would take over, an approach Tandem marketed as “NonStop.” These systems and the services that came with them provided Compaq with some protection against the falling profit in its PC division, which struggled in its competition with direct sellers.
But that deal was nothing compared to what came next: The $9.6 billion acquisition of venerable, Massachusetts-based Digital Equipment Corp. in 1998. At the time, it was the largest computer-industry merger. DEC made servers and even bigger computers. The company also had its own line of high-end processors known as Alpha that competed with Intel’s chips.
DEC was a big company with thousands of employees that had been around since the late 1950s, and Compaq struggled to integrate DEC into its operations as it was hounded by Dell and other, less-pricey competitors. A year later, Pfeiffer was ousted as CEO and replaced by Capellas, who had been Compaq’s chief information officer.
It was Capellas who delivered the company into the arms of Fiorina and HP in 2001.
Unpopular union
Both in Houston and in Palo Alto, Calif., where HP was based, the proposed $24.2 billion merger was unpopular. Members of the Hewlett and Packard families, who were significant shareholders, opposed it because they felt it exposed HP to the troubles in the declining PC market. In Houston, many Compaq employees thought the company had given up too soon.
Former HP director Walter Hewlett, son of founder Bill Hewlett,
unsuccessfully sued to stop the merger, saying HP had bullied a big investor into supporting it. The merger was completed in early May 2002 and celebrated with the parade around the Compaq campus, which had been rebranded with HP signs.
“I remember when the acquisition took place, they changed the signage within the first 24 hours,” said Mark Vena, then a Compaq senior director. “Anything with the Compaq logo was replaced and updated. I understand why they did it, but that rubbed a lot of people the wrong way.”
Compaq employees who were eyewitnesses at the time differ on the details. Some say Fiorina was carrying a flag with the HP and Compaq logos. Others say, no, but she was wearing a cowboy hat. Still others say the CEOs were riding together in a golf cart.
“I got an email inviting me to this, and you know, suddenly I discovered I had a meeting I had to be at,” Vena said.
Former Compaq employees say the HP and Compaq styles were markedly different. Nora Hahn, who spent 24 years working in public relations for first Compaq and then HP, said Compaq had a “cowboy culture” in which they were willing to take risks and move fast.
“HP was more deliberate and
reserved,” Hahn said. “We liked to let our hair down. We weren’t above cussing in meetings, and when we did, the HP people were always a little shocked.”
The merger and its rocky start took its toll on Fiorina’s support and she was ousted three years later as HP’s stock fell and that of Compaq’s old nemesis, Dell, soared. Today, when you search for lists of the worst mergers in corporate history, the HP-Compaq merger is often near the top, if not No. 1.
Neither Fiorina nor Capellas responded to multiple requests for interviews.
Birth of HPE
In 2015, under CEO Meg Whitman, HP was split in two. Hewlett-Packard Inc. became the company that produces and sells consumer PCs and printers. Hewlett Packard Enterprise focused on business products such as servers, digital storage, cloud computing services and financial services.
Hewlett Packard Enterprise is moving its headquarters to Houston, building two mid-rise towers with a total of 440,000 square feet in Springwoods Village, south of The Woodlands. Construction is expected to be completed in early 2022.
The company’s current offices are at Compaq’s former campus
near Texas 249 and Louetta. It was heavily damaged in Hurricane Harvey and by earlier floods. That’s the main reason HPE is building a new campus. But Rishi Varma, senior vice president and general counsel, said that the coronavirus pandemic has all of its employees currently working from outside the office
It probably didn’t hurt Houston’s chances of landing HPE’s new headquarters that its chief executive, Antonio Neri, lived here from 2004 to 2015. In an interview, Neri spoke warmly of Houston’s welcoming nature and diverse community.
Varma said that, because Houston already is home to the largest HPE workforce in the
U.S., the work done here encompasses everything HPE does. It counts among its local customers Texas Children’s Hospital and many oil and gas companies, he said.
“What we focus on is really how you manage your data,” Varma said. “We’ve got storage servers, we’ve got network connectivity, and we manage how companies are accessing and utilizing their data on a day-today basis.”
The HPE group also does research and development on future products, and manages the financial services business
that leases HPE products.
HP, the consumer PC and printers company created in the split, will be a neighbor to HPE once the new campus opens. HP moved from the flood-ravaged Louetta campus in 2019 to another site in Springwoods Village, where it occupies 400,000 square feet. There it does research and development, product development and supplychain logistics, a spokesperson said.
When Amazon infamously failed to put Houston on the short list for its second corporate headquarters, area leaders said it was a wake-upcall for the city in its efforts to grow its technology sector. Jankowski, of the Greater Houston Partnership, said the HPE relocation was “a bit of a wake-up call for the rest of the tech industry.”
“There’s one thing to making yet another trip (to tout Houston) and it’s another thing to get an announcement that makes the front page of the Wall Street Journal,” Jankowski said. “And what may follow is that we’ll get companies to look and say, ‘Well, what’s going on in Houston that we should be looking into it as well?”