New Compaq Resignation Signals Lengthy Turmoil:Analysts
By Bob Sechler
06/02/1999
Dow Jones News Service
(Copyright (c) 1999, Dow Jones & Company, Inc.)
AUSTIN, Texas (Dow Jones)--The latest resignation of a top Compaq
Computer Corp. (CPQ) manager - six weeks after the exodus began
with the ouster of former Chief Executive Eckhard Pfeiffer - signals that
turmoil at the company is far from over, analysts say.
"This looks like a six-month project," said Louis J. Mazzucchelli of
Gerard Klauer Mattison. "It's going to take them that long to get the
people in place and start turning the ship around."
Mazzucchelli and several other analysts said they won't be surprised to
hear of even more resignations in coming weeks as Compaq Chairman
Benjamin M. Rosen and the company's board enact changes designed to
jump start Compaq 's sagging fortunes, although none would name
potential candidates.
Compaq Senior Vice President John Rose resigned this week, effective
Thursday, the latest in a string of top executives to depart since Pfeiffer's
forced resignation April 19. Pfeiffer was ousted in the wake of the
company's extremely disappointing first-quarter earnings report.
Former Chief Financial Officer Earl Mason quit the same day that Pfeiffer
left, and John Rando, head of the company's $6.4 billion
computer-services unit, resigned May 11.
Some analysts said it was only a matter of time until Rose left as well.
"He was close to Eckhard and was considered a part of the old guard,"
said U.S. Bancorp Piper Jaffray analyst Ashok Kumar.
Rosen, who - since Pfeiffer left - has been running Compaq day to day
since as part of a committee composed of himself and two other board
members, has criticized management under Pfeiffer for becoming
bureaucratic and slow to respond to industry changes.
In a memorandum Wednesday, Rosen reiterated to Compaq employees
that the board is committed to an organizational "realignment" designed to
"simplify operations and improve execution."
Rosen didn't detail future changes under the planned realignment, although
he said some will be forthcoming shortly.
He announced that Michael Capellas, who had served as senior vice
president and chief information officer, has been appointed to the new
post of acting chief operating officer. Rosen also announced that Enrico
Pesatori, Compaq 's acting senior vice president of corporate marketing,
has been named senior vice president and group general manager of the
company's enterprise computing group.
Reorganization Fuels Departures
Analysts said the board's ongoing reorganization and attempts to re-focus
Compaq have been spurring the management resignations, whether they
are forced or not.
"We know that the world at Compaq is going to change," said William
Conroy, of Sanders Morris Mundy. "To the extent that individuals are
either found to be not capable of changing to the new environment, or if
they realize themselves (that they don't want to change), there will be
some more."
Most agreed that the changes at Compaq , including the resignations, will
turn out to be positives for the company in the long term.
"Any change is positive as far as Compaq goes," said Kumar, of Piper
Jaffray.
Still, some said the turmoil and uncertainty surrounding the company likely
will continue - and will affect its ability to compete - until the board names
a new chief executive and unveils its full reorganization plan.
Compaq officials declined to reveal details Wednesday of their search for
a replacement to Pfeiffer, except to say the search "is progressing." Rosen
said in April that the search for a new chief executive would take several
months, at least.
"There's so much uncertainty and inward-looking issues (facing Compaq
) that, in my opinion, it's unlikely they can outperform the competition,"
said Mazzucchelli, of Gerard Klauer Mattison, who has had a hold rating
on Compaq shares since before Pfeiffer left. "They're likely to continue to
lose market share to some other competitors while they sort this out."
But Kumar voiced a more optimistic outlook for the company, at least
from an investment perspective. He continues to have a buy rating on
Compaq even though its shares have been hovering below 30 after
tumbling from a 52-week high of 51 1/4 in January.
"At these levels, what's the downside risk?" Kumar asked.
For their part, Compaq investors appeared to be taking the latest top
management resignation in stride. Its shares were recently trading at 23
3/8, up 5/16, or 1.4%.
-By Bob Sechler; 512-236-9637
(END) DOW JONES NEWS 06-02-99
03:23 PM |
