Telling comment->the PC industry is demanding, not that there's no demand for PCs.
Rosen's Balm
The Take
April 20, 1999
by Phil Harvey
Perhaps the most telling comment on the state of the PC industry came from Compaq Chairman Benjamin Rosen. When commenting on Eckhard Pfeiffer's forced resignation, Rosen said, "As a company engaged in transforming its industry for the Internet era, we must have the organizational flexibility necessary to move at Internet speed, well ahead of the market at any moment."
Organizational flexibility? Perhaps that's a nice way of saying Compaq's cutting dead weight and no one's job is safe. While that's not reaffirming for Compaq, it is for those companies in the PC industry that take a focused stance in the market.
"[Pfeiffer] got hoisted because of a common problem that occurs with companies that depend on a channel to do all their fulfillment," says Harry Fenik, Zona Research's VP of analysis.
Fenik points out that Compaq choked when trying to simultaneously adapt its business to the Internet and finish swallowing two sick companies (Digital Equipment Corp. and Tandem). He recalls that when Compaq first tried to sell via the Internet at razor-thin margins, it also had to pacify its resellers by offering them the same attractive pricing. And that hit Compaq's bottom line pretty hard.
"If you look at [Compaq's] last warning," Fenik says, "It was about falling profit, not revenue." Indeed, Compaq's recent earnings warning claimed profit expectations would be half what Wall Street originally anticipated.
Compaq's earnings fell because its executives took their eyes off the ball, juggled too many conflicting issues at once, and couldn't make any one of them successful. But other statements Chairman Rosen made on Pfeiffer's exit show that he understands this. "We must also remain intimately connected to our markets and customers," he says. "We have done it before. We will do it again."
With that assurance, Rosen seems to be promising the return of a more focused Compaq. Sure, its competitors have had their moments of PC embarrassment. But unlike IBM and HP, Fenik points out that Compaq didn't have a profitable high-end computing business to prop up its PC business. It tried to buy into the high-end space, but only by gobbling up troubled companies.
Compaq's problems show that the PC industry is demanding, not that there's no demand for PCs. Compaq is finding out that it's not so easy to offer services like IBM and be an Internet business like Dell, says Fenik.
That said, Compaq needs some tweaking before it can move at Mr. Rosen's suggested Internet speed. Probably the only one who's breathing easier after Pfeiffer's departure is Pfeiffer himself. Now he won't have to untangle the mess created when a company raised on the retail channel painfully comes to grips with the Internet.
[courtesy:UPside]
(Phil Harvey (pharvey@upside.com) writes for UpsideToday)
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