No Party For Compaq
Chief PC Maker's Choice
Raises Eyebrows, Not
Glasses
Date: 7/26/99
Author: Nick Turner
Go figure.
Hewlett-Packard Co., a company that almost
always hires from within, last week tapped a
celebrity outsider for its top spot. Then later in
the week, Compaq Computer Corp. - which
was expected to seek a high-profile chief from
another company - promoted an unknown
from its ranks.
And HP's surprise choice, Carleton Fiorina,
the first woman to hold a top spot for a
company that size, was well received by Wall
Street. Meanwhile, Compaq's pick, Chief
Operations Officer Michael Capellas,
produced far less sizzle.
But analysts say it's not that hard to figure out.
A well-known turnaround specialist would
have given Compaq's stock a jolt.
'Just based on his resume, I was
disappointed,' said Charlie Wolf, analyst at
Warburg Dillon Read LLC in New York. 'I
was thinking they'd go outside the company
and get someone with broad managerial
experience.'
Operational problems, high overhead and a
sense that Compaq is out of touch with
customers have driven down the PC maker's
stock from a 52-week high of 51 1/4. Shares
Friday fell slightly to 24 1/2.
Compaq's appointment of Capellas capped a
three-month search. Compaq's board, led by
Chairman Ben Rosen, forced out Chief
Executive Eckhard Pfeiffer in April. After a
few unsuccessful overtures with outsiders,
Compaq chose to go with one of its own.
'(Capellas) has one distinct advantage: He's
already doing what needs to be done,' Rosen
said when he announced the appointment
Thursday at a New York press conference.
Capellas does have the edge of hitting the
ground running, analysts say. Compaq
launched a reorganization plan in June, the
same month Capellas was elevated to chief
operating officer. He had been serving as chief
information officer since he joined Compaq in
August 1998.
There was some concern within Compaq that
an outside choice would struggle to put his
own stamp on a turnaround plan that already
was in place. In selecting Capellas, Compaq
did more than opt for an insider. They chose
an information-technology veteran over a
more general manager.
Capellas, 44, held management positions at
database- software makers Oracle Corp. and
SAP America, a unit of SAP AG, prior to
joining Compaq.
'I have spent my entire life in information
technology,' Capellas said Thursday.
That experience will be critical as Compaq
tries to tap into a widespread movement to
electronic commerce and electronic business,
he says.
'It's the dawn of the e-commerce and
e-business age,' he said.
Compaq rivals, such as IBM Corp. and Sun
Microsystems Inc., so far have better
positioned themselves in this emerging market,
analysts say. A Compaq chief executive with
info-tech roots might change that.
Though Capellas has a technology
background, some analysts wish he had more
hardware experience. He's worked mainly for
software companies. And while Compaq is
expanding its services and software products,
the vast majority of its sales come from
hardware.
Some analysts say an industry veteran such as
key IBM executive Samuel Palmisano, who
oversees Big Blue's computer operations,
would have been a better choice.
There are those on Wall Street who are
confident that needed reforms are already in
place at Compaq. Gillian Munson, analyst at
Morgan Stanley Dean Witter in New York,
Friday raised her Compaq rating from neutral
to outperform. Saying Compaq was headed in
the right direction, she set a price target of $34
a share.
But most appear to be waiting for Capellas to
perform. Capellas said the right things during
his coming-out speech Thursday, says
Warburg Dillon's Wolf.
'Now it's about proving that he can do it,' he
said.
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