Also from today's WSJ, article on CPQ Europe's problems...
John
Compaq's European Unit Loses Its
Luster;
Executive's Departure Just Another Blow
By MATTHEW ROSE
Staff Reporter of THE WALL STREET JOURNAL
LONDON -- When Compaq Computer Corp. Chief Executive
Eckhardt Pfeiffer fell on his sword earlier this year after a profit
warning, executives pointed to Compaq's European operations as a
continuing bright spot.
They can't anymore.
Since last week, the unit, Compaq's fastest-growing in 1998, is
facing new competition from a venture formed by Siemens AG and
Fujitsu Ltd.
Compaq Europe also lost its respected
senior executive, Andreas Barth, who
announced his resignation last week, after
11 years with the company.
Moreover, his surprise replacement, Werner Koepf, says Compaq's
European business is slowing in France, Germany and the United
Kingdom, and that profit margins have been hit by the weakness of
the euro. Computer components are priced in dollars.
Unable to Raise Prices
"I would say overall the growth is not as it used to be," says Mr.
Koepf. He says a 10% increase in the value of the dollar against the
euro since the currency's January launch has hit Compaq's profits
directly, because it hasn't been able to raise prices to compensate.
In the first quarter of this year, Houston-based Compaq was
Europe's largest computer vendor, with a 17% share of the market
and 27% growth in unit sales from the year-earlier quarter,
according to International Data Corp., a market research firm. Mr.
Koepf declined to comment on the company's second-quarter
performance, citing a quiet period ahead of the official results
announcement. When senior executives in Houston warned last
week that Compaq would lose money in the second quarter, they
cited "a flattening of demand in Western Europe" as a challenge for
the company.
The loss of 55-year-old Mr. Barth, who turned Compaq into Europe's
premier computer maker since taking over in 1991, is a blow,
analysts say. A father figure who knows many of his employees by
first name, Mr. Barth says his resignation had been planned for over
three years and isn't related to the company's current problems. He
says he put his intentions in writing before the resignation of Mr.
Pfeiffer, a close ally.
Mr. Barth says he will retire to his house near Verona, Italy, intends
to spend time with his wife and will put his guitar collection to better
use. He is also considering a doctorate in business administration
and, right now, doesn't anticipate a return to corporate life. "When I
go to parties it always [embarrasses] me when friends say, 'it's so
nice of you to spend the time to come," because so many times I
couldn't come," he says.
New Guard
Analysts say Mr. Barth's decision to leave, coming so soon after the
departure of other allies of Mr. Pfeiffer and the difficulties of
integrating Digital Equipment Corp., was probably mutual, leaving
room for a new guard to concentrate on the company's restructuring.
"He has hasn't gone in there and out of the blue decided to retire,"
says Steve Brazier, an Oxford, England-based industry consultant.
His replacement, Mr. Koepf, 57, a 22-year veteran of Texas
Instruments Inc., joined Compaq in 1993 to run 11 of Europe's
smaller country organizations. Mr. Koepf says his new role is to
implement Compaq's strategy, including a new organizational
structure and sales method. "In my career, I was always brought in
when it was about execution and this is what I will put my emphasis
on," he says.
His first challenge is helping Compaq's European operations switch
to selling products and services directly to customers rather than via
third-party resellers. The strategy, prompted by the success of
direct-seller Dell Computer Corp., has taken its toll on the company,
which blamed its expected loss of around $260 million (251.3 million
euros) for the second quarter on higher expenses and
lower-than-expected revenue caused by the shift to direct selling.
Slow Pickup
In Europe, only a "very small percentage" of Compaq's products are
shipped directly, compared with 15% in the U.S., Mr. Koepf said. He
said the European operations will probably be three to six quarters
behind the U.S. target of 25% by the end of the year. That's partly
due to the relatively slow pickup of the Internet by consumers and
business in Europe.
Because of legal holdups, the acquisition of Digital is behind
schedule in large European markets such as Germany and France,
says Mr. Koepf. "We could only execute the restructuring and
integration in the first quarter this year," he says, adding that
integration in many of Europe's smaller countries was completed on
target.
Mr. Koepf also acknowledged that the merger of Siemens and
Fujitsu's European PC operations will create a new competitor. The
combined entity will have around 12% of the European market,
second only to Compaq, and will be the dominant player in
Germany, the world's third-largest computer market. "We take them
seriously, but if you look in certain countries, we have a two-to-one
lead," he says. "It just keeps us on our toes." |
