Analysts Not Convinced Capellas Can Fix Compaq
By Eric Moskowitz
Senior Writer for theStreet.com
7/22/99 9:39 PM ET
Michael Capellas gave one hell of a speech Thursday. It was enough to wow Compaq (CPQ:NYSE) kingmaker and chairman Ben Rosen to crown him as the company's new CEO.
According to a Compaq board member, when the board met Thursday it was still only 90% sure that it wanted to tap Capellas CEO. "But he gave a brilliant presentation today to us and that convinced us," says the board member, who spoke on the condition of anonymity.
It may also have been desperation. The appointment of Carly Fiorina as Hewlett-Packard's (HWP:NYSE) CEO Monday was widely praised by the media and Wall Street. Rosen spent a fruitless three months searching for an external candidate inside and outside the tech industry. There were interested candidates but no takers. While Fiorina brings a new look to H-P, Capellas offers a vision that may offer little new to investors.
Investors may have wanted someone offering radical ideas to a hardware company that is feeling the competitve pressure. Rosen's recent moves such as selling a controlling interest in Alta Vista, the company's search engine, to CMGI (CMGI:Nasdaq) may have made it impossible for Compaq to attract an external candidate. "Compaq needed a new broom, someone who could recapture the imagination of the company," says a money manager who requested anonymity and is short the stock. "Instead, they are getting another one of Ben Rosen's bozos."
Capellas, who is 44, has much to do and many people to please now that he is the third CEO in Compaq's history after Rod Canion (through 1991) and Eckhard Pfeiffer (through April 1999). Capellas, who came over from Oracle (ORCL:Nasdaq) last August, was named Compaq's chief operating officer in June.
At a hastily arranged press conference Thursday evening in New York, Capellas stressed how Compaq wanted to add utility to the Internet as the company gets involved in e-commerce. He also aims to sell 25% of its total revenue directly to customers by the end of the year and eventually to realize 40% of revenue through direct sales. Compaq currently sells 15% of its sales direct.
In his first speech to the gathered press, Capellas broke little new ground. "We want to own the customer relations, take more business direct and improve the supply chain," he said.
Amir Ahari, a senior analyst at International Data, who listened to the speech, said he isn't convinced that Capellas has the right strategy to improve the company's problematic relationship with its partners and resellers. "He said nothing about simplifying distribution," Ahari said. The last time Compaq tried to increase its direct-to-order business, distributors and resellers rebelled.
Chairman Rosen said he was disbanding the office of the chief executive office, and returning "to my home on Central Park West." Rosen had been working out of Pfeiffer's old office for the past three months. He said Thursday that no other candidate was considered for the CEO position.
For Compaq investors, Aug. 15 will be when Capellas more clearly identifies the company's reorganizational plans. "He talks the talk, but can he walk the walk?" wondered Lou Mazzucchelli, a Gerard Klauer Mattison analyst. By all accounts, Capellas has a lot of walking to do.
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