WSJ
April 18, 1999
Compaq Is Stunned by Resignation
Of Chairman, CEO Eckhard Pfeiffer
An INTERACTIVE JOURNAL News Roundup
HOUSTON -- Without notice and with little explanation, Compaq Computer Corp. President and Chief Executive Officer Eckhard Pfeiffer resigned Sunday along with the company's chief financial officer.
The company's board formed an interim chief executive's office to handle day-to-day operations of the world's largest supplier of computer systems.
Pfeiffer Defends Compaq Model as PC-Industry Debate Continues (April 13)
Compaq's Stock Stumbles 22% After Warning of Plunging Profits (April 13)
Compaq Profit Warning Raises Serious Questions (April 12)
Also resigning Sunday was Earl Mason, Compaq's chief financial officer. Compaq treasurer Ben Wells will take on Mr. Mason's duties at least on an interim basis.
Among the leading makers of personal computers and software in the U.S., Compaq has been under tremendous pressure from stockholders since it surprised Wall Street on April 9 by announcing its first-quarter earnings would be half of what analysts expected.
Compaq shares, which traded as high as $51.25 earlier this year, dropped 23% on April 12, the first day of trading after the announcement. Compaq closed Friday at $23.625.
"Compaq has the best team anywhere in the industry -- we have the people necessary to make the right changes that will reinforce our industry leadership," said chairman Benjamin M. Rosen, who will serve as acting CEO. "We have re-energized this company before, and working together, we will do it again."
Mr. Rosen described Mr. Pfeiffer's tenure at Compaq as one of "stunning growth" and that everyone at the company owed him a "debt of gratitude."
Mr. Pfeiffer said that the company had grown enormously in his 16 years at the helm, and that Compaq would continue to excel under Mr. Rosen's leadership.
On April 9 when Compaq warned about the shortfall in its earnings, some analysts questioned the PC maker's ability to manage competition while melding operations with Digital Equipment Corp.
Compaq, which in February warned of slackening demand for its PCs, said that heightened competition and disappointing sales of its most-profitable computers will result in net income of about $250 million, or 15 cents a share, for the quarter, Compaq said. That was well below the already-lowered consensus estimate of $560 million, or 32 cents a share, held by Wall Street analysts. Revenue was projected at $9.4 billion, $100 million to $400 million below analysts' projections.
Compaq's disclosure shocked many analysts who had come to believe that the company's income was on track, and several pointed to the integration of Digital Equipment, which Compaq acquired in June. "The company has overstated the DEC synergies," said analyst Ashok Kumar of US Bancorp Piper Jaffray Inc.
"Compaq said there was lower demand; everything we see says different," said analyst Charles R. Wolf of Warburg Dillon Read. Indeed, a day before Compaq's announcement, rival Dell called PC demand healthy, across all geographic, product and customer segments.
Instead, said Mr. Wolf, "there are two issues here: integrating DEC and the misguided steps the company took last fall" to sell directly to businesses. He said he believes Compaq's need to add dealer incentives for products intended to be sold directly has contributed to margin declines.
The timing of this latest problem couldn't have been worse for Mr. Pfeiffer, who was struggling to turn around the Houston PC maker's fortunes for better than a year.
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