Computer Maker's Fast Start

The New York Times

June 16, 1983

In many respects the Compaq Computer Corporation, an 18-month-old company based in Houston, is a symbol of the personal computer industry of the 1980's.

Like many new computer companies, it was started by a small group of defectors from a larger manufacturer, Texas Instruments. On the strength of a prototype and an idea, the company's founders quickly assembled $30 million in venture capital. And, as often happens, their former employer has taken them to court, charging them with raiding the company and infringing its patents.

At the center of this activity is Compaq's enormously successful product: a 28-pound, portable version of the International Business Machines Corporation's popular personal computer that retails for between $3,000 and $4,000.

While Compaq only began shipments in February, dealers are complaining that the company, like I.B.M., cannot roll the machines off its assembly lines fast enough to satisfy demand. Analysts expect that the company's dealers, which include such important outlets as Sears, Roebuck & Company and Computerland, will sell 25,000 to 40,000 Compaqs by the end of the year.

According to Future Computing Inc., a private firm that monitors the industry, Compaq's revenues will range between $70 million and $80 million this year.

Demand 'Shocked Everybody'

''It has shocked everybody,'' said H.L. Sparks, who spent two years as a top marketing planner for I.B.M.'s personal computer before he defected to Compaq a few months ago. ''Nobody can fill the orders. I.B.M. can't, and we can't.''

Compaq's machine appeals largely to professionals who have I.B.M. equipment at the office and want one for the road. It runs on virtually all of the same programs. But the 9-inch screen is built in, and the keyboard folds up to create a machine the size of a bulky briefcase.

But even rising stars are not immune to the forces of gravity. Analysts note that the success of Compaq and scores of other high technology companies depends largely on their ability to avoid the price cutting and excess inventories now plaguing manufacturers of inexpensive (under $500) home computers and video games.

Impact of Price Cutting

In one graphic illustration of the damage that price cutting is causing manufacturers at the low end of the market, Texas Instruments, an industry leader, announced last weekend that it expects to report a loss of as much as $100 million in the second quarter.

While less severe price cutting has already been seen in the personal computer market, which includes fairly sophisticated computers selling for more than $1,000, analysts say it will probably be more orderly than at the low end of the market. Nor are retailers likely to be caught holding large inventories of the more expensive machines, they say.

At the same time, Compaq's success could be undercut by a single blow from I.B.M. itself. The computer giant is rumored to be working on a portable version of its machine and on a unit called the ''Peanut,'' an inexpensive model aimed at the home market that it is expected to introduce within a few months.

Uneasy Relationship With I.B.M.

''We know that we cannot sit back and just sell this one product,'' said Rod Canion, Compaq's president and chief executive officer. ''And we would be very hesitant at this point to use any unproven technology. The key is that we cannot compete with I.B.M. on price, but to satisfy some needs that I.B.M. cannot.''

Indeed, Compaq's remarkable start, which outpaces even the early performances of Apple Computer and Atari, owes something to I.B.M. itself.

In a departure from usual industry practice, I.B.M. published the technical specifications for its personal computer in the hope that other companies would develop the devices and programs needed to establish the unit as an industry leader.

Mr. Canion said recently that Compaq was founded on the hope that I.B.M. would standardize the somewhat chaotic personal computer market, just as it established standards for large mainframe computers in decades past.

'It Was a Good Guess'

''It was a good guess,'' said Benjamin Rosen, Compaq's chairman. Mr. Rosen, a former computer analyst who started a venture capital partnership last year that became one of the major investors in Compaq, added: ''We think that in time the I.B.M. will be adopted by 80 percent to 90 percent of corporate America.''

Indeed, some analysts predict that about one-third of the $14 billion retail market in personal computers expected by 1986 will involve I.B.M.-compatible machines, many of them portable.

Company officials decline to speculate on whether they will consider going public later this year or seek more debt financing. That decision rests in part on the nature of Compaq's future products, which by some accounts will include a notebook-sized version of the computer.

The company declines to comment on any of its plans, but says that several new products should be introduced by the end of the year.

'Some Things We Cannot Do'

To a large degree, the company's future is tied to I.B.M.'s designs. While the I.B.M. personal computer is not technically advanced, improving on it, even if the result is a more efficient or less expensive machine, risks jeopardizing Compaq's near-total compatibility with I.B.M. standards.

''We think that still leaves us a lot of room for improvement,'' said William Murto, the company's vice president of marketing and sales. ''But it is true there are some things we cannot do.''

For example, Mr. Murto said, the company's engineers have considered making use of a smaller and better disk drive than the one I.B.M. has chosen. The disk drive is the device that transfers information to floppy disks for permanent storage.

''But I.B.M. has chosen a standard and we will have to live with it,'' he said. ''Standardization is the key element that is now absolutely necessary in the consumer market.''

Still lurking over the company is a suit brought in January by Texas Instruments against Compaq and 10 of its officers and employees, all former employees of Texas Instruments.

The suit charges that Compaq infringed on Texas Instruments' patents in the construction of its portable computer. It also charges that Compaq's three co-founders, Mr. Canion, Mr. Murto and James M. Harris, induced Texas Instruments employees to defect to Compaq in hopes that they would take trade secrets with them.

Compaq, for its part, has filed a countersuit, charging Texas Instruments with restraint of trade. In the long run, however, the company's executives say that I.B.M.'s future products are a bigger worry than Texas Instruments' legal actions. ''To be successful in the personal computer marketplace you must get shelf space next to I.B.M.,'' Mr. Rosen said.

Illustrations: Photo of founders of Compaq Computer Corporation