Compaq execs wrestle with
embarrassing quarter
By Lisa DiCarlo, PC Week Online
April 14, 1999 9:44 AM ET
HOUSTON -- The timing couldn't have been worse.
As they welcomed thousands to their company's
largest-ever customer confab, executives of Compaq
Computer Corp. were forced into an embarrassing
corner.
Compaq, which will officially issue its earnings report on
April 21, stunned Wall Street Friday by warning that it
would miss earnings expectations by a wide margin.
But because of Securities and Exchange Commission
constraints, its senior officials were forced to talk
around the reasons for the shortfall as they sought to
put the best possible face on the situation.
"These things are very complex," said John Rose,
senior vice president and group general manager of
Compaq's Enterprise Systems Group.
Rose and other senior executives at the Innovate 99
conference here attributed the company's problems to a
combination of weak PC demand compounded by its
earlier acquisition of Digital Equipment Corp.
Pfeiffer: We're on track
When the acquisition was completed last June,
Compaq announced plans to cut about 17,000
employees. Compaq CEO Eckhard Pfeiffer said
Tuesday that Compaq's integration of the once mighty
minicomputer maker was on track.
Still, officials allowed that the task has posed myriad
organizational challenges for Compaq. For example,
prior to the merger, Digital's services division was a $6
billion group with about 23,000 employees.
"There was a clash of cultures," recalled John Rando,
senior vice president and group general manager of
Compaq Services, based in Stow, Mass. "They had a
PC-oriented model [to deliver] services through the
channel and we always dealt directly."
Despite efforts to smooth out lingering kinks before the
merger got officially approved, Rando said the
organization was hampered by a prolonged period
during which some people "were not sure what they
were supposed to do."
In the end, the group initiated a hybrid model of direct
and indirect services. For example, Compaq Services
does hands-on Microsoft Exchange integration, but
works through channel providers for similar work on
Lotus Notes.
"We got religion and got it fast," Rando said.
Image problems
Compaq still encounters difficulty changing the
perception that it's largely a PC supplier.
"The [Compaq] brand is still associated with PCs,"
Rose said.
Compaq wants to change that perception by advertising
the depth and sophistication of the services and product
lines it offers. In that vein, the company is heavily
promoting its new Web enterprise strategy, which it
refers to as the NonStop e-business solutions.
Ironically, the group that had the easiest integration job,
the PC Products Group, is the division still under the
most pressure, according to Mike Winkler, senior vice
president and group general manager. He said Compaq
expects to outpace the market in PC unit growth but
that revenue would likely lag because of falling selling
prices. However, he said the division will continue to
grow profitably.
One of the ways it will do that is to start leveraging its
services for life cycle management and outsourcing
under a new initiative called PC Lifecycle Solutions. It
encompasses planning, deployment, management and
transition of PCs.
Winkler said Compaq has also reduced the cost of
doing business by eliminating or significantly curtailing
price protection to channel dealers.
"Price protection is a cost of doing business and it's
one that Dell [Computer Corp.] doesn't have."
Root problems?
During a question and answer session, Pfeiffer
dismissed criticism that Compaq's distribution and
manufacturing efficiency programs were all over the
map. He said Compaq's decision to support multiple
channels -- five sales channels for small and
medium-size business and four channels for large
business -- are not a drag on the bottom line.
"You're limiting yourself if you're 100 percent in one
area," he said, adding that Compaq will make products
available however customers want to buy them.
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