NEWSMAKER-Little-known Compaq CEO takes spotlight
By Eric Auchard
NEW YORK, July 23 (Reuters) - Michael Capellas, the little-known new Compaq Computer Corp. (NYSE:CPQ - news) chief executive must contend with all the challenges of a promising benchwarmer suddenly called into win a championship series.
Compaq, the world's No. 1 personal computer maker, which faces falling profits and intensifying competition, surprised the financial world on Thursday when it named Capellas as its president and chief executive.
Initial reaction by Wall Street was favorable, but analysts said his job was nothing short of reversing the declining fortunes of a computer giant at a crossroads in its history.
The promotion ended a high-profile search that began in April when predecessor Eckhard Pfeiffer was forced out by a board of directors unhappy over Compaq's repeated PC sales problems and slow progress in expanding beyond PCs.
''If it turns out that (Compaq's) problem has in fact been execution, Mr. Capellas may well turn out to be the right guy for the job,'' Merrill Lynch analyst Steve Milunovich said Friday.
''However, if (Compaq's) problem is equally a strategy one, then this may not have been the right decision,'' he said.
Only weeks ago, Capellas became Compaq's chief operating officer, after joining the company as chief technology officer a year ago. Most of his career he was a mid-level technology manager in the energy, automotive, software and semiconductor industries.
The financial world had expected Pfeiffer's replacement to be a well-known business figure, but the company was rejected by candidates such as Continental Airlines President Greg Brenneman and Oracle Corp. President Ray Lane, financial analysts said.
On Friday, few on Wall Street changed their outlook for the company, adopting a wait-and-see attitude on the decision to hand the reins to Capellas.
Compaq shares fell 50 cents to $24.50 on the New York Stock Exchange, where it was the most active issue. The stock was down from its year-high of just over $51.
In his first public appearance at an introductory news conference in New York Thursday -- the balding, bespectacled Capellas impressed his audience with confident, humor-laced answers, even in the face of tough questioning posed by reporters and analysts.
''Capellas was surprisingly articulate and passionate during his speech... and handled (questions and answers) like an old pro,'' Milunovich said in a note to brokerage clients, adding it was too soon to pass judgment on Compaq's choice.
Capellas, a 44-year-old certified public accountant from Warren, Ohio, joined Compaq in August 1998 after stints at Oracle Corp. (Nasdaq:ORCL - news) and SAP AG (quote from Yahoo! UK & Ireland: SAPG.F) and 15 years at Schlumberger Ltd. (NYSE:SLB - news), an oil-field services provider. He once headed a computer-chip factory for Schlumberger's Fairchild Semiconductor unit.
Compaq Chairman Ben Rosen said the search team he led looked far and wide for Pfeiffer's successor but eventually found Capellas right in its own backyard.
''The more we compared his operational and strategic capabilities to people outside, the wider the gap became,'' Rosen said in a Reuters interview.
Rosen said computer companies do not have the luxury of hiring a CEO needing to learn the ropes in such a competitive industry. ''Speed is of the essence,'' he said.
Capellas said he would move quickly to get Compaq back on a sound footing, vowing to put in place by Aug. 15 a restructuring plan that would cut costs and weed out unprofitable products.
He pledged to speed internal decision-making up to non-stop Internet-time and to move rapidly to boost the percentage of PCs Compaq sells directly to customers, repeating a plan the company's prior CEO found difficult to execute.
''While we clearly have some challenges in front of us, I do believe that we are on the path and this can again be a great company,'' Capellas said.
How to face that challenge of faster-growing rivals like Dell Computer Corp. (Nasdaq:DELL - news), who sells PC direct to customers, is a major dilemma for Compaq, which sells mostly via a network of retailers and distributors who take a bite out of margins.
That system has been blamed in part for inventory gluts that have hit Compaq's earnings hard the past two years.
The company earned just 17 cents a share in the first quarter of this year, half of what analysts had forecast, and warned last month it expected to lose up 15 cents a share when it reports second-quarter earnings Wednesday.
Capellas also must confront the difficulties Compaq has faced in digesting Digital Equipment Corp., which it bought last year for $8.4 billion. Analysts said what remained of Digital and its service business was losing customers.
Some analysts have speculated that the continued presence of legendary company co-founder and chairman Rosen, who has played a decisive role in pushing out Compaq's two prior CEOs, may have hurt the company's chances of hiring a superstar.
''The impression is that Compaq couldn't attract a heavy hitter from the outside,'' Milunovich said.
''Then again, Lou Gerstner was IBM's fifth choice,'' Milunovich said of IBM's chairman and chief executive, who has been widely hailed for leading a turnaround at the world's largest diversified computer maker since taking over in 1993.
|
