BUSINESSWEEK ONLINE : SEPTEMBER 4, 2000 ISSUE
COVER STORY Thinking Big by Thinking Small It was hardly a typical Compaq event. At an Aug. 15 press conference in New York's Essex House hotel, the company introduced four new products--and not one was a PC. Instead, the event marked Compaq Computer Corp.'s grand entrance into the risky new world of Internet appliances. Featured were a pager-size device for listening to Net tunes, a sleek tabletop machine for fetching e-mail and browsing the Web, a wallet-size wireless e-mail gizmo, and a home-networking appliance for getting a handful of people on the Web simultaneously. They're all iPAQs, Compaq's new brand for Web devices. ''This is about Compaq leading the industry in a new category--going beyond the PC,'' says Senior Vice-President Michael J. Larson. To Chief Executive Michael D. Capellas, it's about selling oodles of ''cool stuff.'' Shortly after the gadget-loving Capellas took over as CEO a year ago, he decided that Compaq, which was started by a handful of engineers in 1982, had lost its techie mystique. By then, the place was known for stamping out huge quantities of cookie-cutter desktop PCs. Capellas believed that to succeed against the likes of Dell Computer and Hewlett-Packard, Compaq had to out-innovate them once again. TIGHT-KNIT. Capellas' bet is starting to pay off. The first two iPAQs, delivered earlier this year, are hot sellers. More than 100,000 of the appliance-like iPAQ desktop machines for businesses were sold in the second quarter--putting iPAQ on track to reach $1 billion in sales in its first year. Plus, the devices are more profitable than regular machines. For the iPAQ Pocket PC, a handheld device with sleek sleeves for adding wireless communications or global-positioning capabilities, demand is four times Compaq's projections. The company expects to sell 1 million units the first year. The iPAQ family got its start in June, 1999, as the super-secret ''vista'' project. A tight-knit group met for an all-day off-site meeting and decided to create stylish, easy-to-use devices. The group, led by Vice-President Jerry Meerkatz, quickly got then-Chief Operations Officer Capellas' blessing. It also got the O.K. to break the rules. Meerkatz could recruit anybody he wanted in the company. He bypassed the usual round of consensus-building meetings. And there was no fuss made about how the first product--starting at $499--might cannibalize Compaq's desktop PCs. The result: The first iPAQ went from bright idea to finished product in just 100 days, rather than the usual year. When the iPAQ desktop was shipped in January, it didn't look like any PC before. It's about the size of a small audio speaker, with aerodynamic lines and ultrasimple controls. The colors: jazzy silver and black. ''We felt as if we had nothing to lose,'' says Randall Martin, Compaq's director of industrial design. ''We figured we'd pull out all the stops and let them pull us back. They haven't done that.'' Not every skunk-works project goes so smoothly. Take Compaq's ''personal jukebox,'' a portable device that is supposed to hold 3,200 songs transferred from CDs or downloaded from the Net. Capellas talked it up late last year. But Compaq now says it probably won't be delivered in 2000. Why? The original design depends on components that pushed the price to $800. It's being reengineered. The competition will be stiff, too. Analyst Bruce Kasrel of Forrester Research Inc. says Compaq is ahead of mainstream rivals with its Net appliances, but cautions that ''it's early in the game.'' He thinks Compaq should license the Palm operating system for handhelds, which he believes is superior to the Microsoft Corp. Windows CE now in Compaq devices. Compaq says it has no plans to do that. For Capellas & Co., this new ground feels a lot like the old Compaq--once the trailblazer of the industry. ''It's a return to the past,'' says Meerkatz, a 12-year Compaq vet. If the new stuff pans out, Compaq could return to the glories of the past, too. By Steve Hamm in Houston _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Compaq's Rockin' Boss COVER IMAGE: Compaq TABLE: Capellas' Turnaround CHART: Sales Growth Is Reviving...Producing Healthier Profits...And Boosting the Stock Price RESUME: Michael David Capellas Thinking Big by Thinking Small ONLINE ORIGINAL: Capellas: From Gridiron to Podium to Home INTERACT E-Mail to Business Week Online

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