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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (84553)	8/30/2000 6:57:34 AM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

Q&A: Compaq CEO likes healthy competition August 30, 2000 by Jerry Borrell From the October 2000 issue of Upside Magazine Michael Capellas attended Kent State University in Ohio, where he majored in business and computer science. He then worked for Republic Steel, Schlumberger (SLB), Benchmark Partners, SAP and Oracle (ORCL). In 1998, Capellas became president of Compaq (CPQ), where he has been CIO and now CEO. There is (or has been) a sign on his huge mahogany desk noting that dancing is not allowed with shoes on. As CEO, Capellas oversees more than 60,000 employees and is responsible for the company's fiscal 1999 revenues of more than $38 billion. Under his direction, the firm has successfully integrated its Digital Equipment Corp. (DEC) and Tandem Corp. acquisitions. These acquisitions gave Compaq, among other assets and businesses, a significant research arm, a huge storage-area network business and 17 percent of the shares of CMGI (CMGI). It also has the closest relationship with Microsoft (MSFT) of any of the major computer vendors. His projects at Compaq include rebuilding the brand of the company, directing new business development, and helping to establish Compaq as an investment and acquisition company. Capellas is smart, friendly and direct; he's one of the nicest people in the world running a company the size of Compaq. During our visits to the Compaq offices, we saw a raft of new computing devices, from handheld devices to pocket PCs to new home devices such as MP3 players, and a newly acquired BlackBerry line of products for which Compaq is the exclusive U.S. distributor. A host of other new products and alliances were also discussed. UPSIDE: You've spent most of your career at Schlumberger. How did that qualify you to work at Compaq? Capellas: There are several things in my history that people don't know about me. I was customer No. 3 of SAP and eventually went to work for that firm, so I knew the supply-chain side of business very well. At Oracle, I built a very successful energy practice for that firm in Houston. I went there to run that segment of their business, but in reality I developed Oracle's first vertical market. And many people do not recall that Schlumberger had purchased and owned Fairchild Semiconductor (FCS) for a period. I spent two years of my life working at Fairchild's semiconductor-wafer lab as an executive for Schlumberger. Schlumberger also provided great exposure in manufacturing training. U: How did you make the transition to Compaq? C: I had turned down calls from their recruiter three times. But this guy was so persistent. He caught me on the phone while I was traveling somewhere, I don't remember where. He convinced me to talk with him during a layover on a plane flight somewhere, on a Newark connection. U: What did he say that interested you? C: He told me that they wanted a head of their information technology, a CIO. He told me they were also looking for a person who could be a general manager. And he told me they needed someone who knew supply chain inside out. They wanted all of these things rolled into one, so I was a model candidate for their position. And you know these executive recruiters, once they have decided they want you, the good ones don't give up. U: And? C: So he set up a meeting with Eckhard Pfeiffer. I had met Eckhard a couple of times. We both lived and worked in Houston. Compaq was at $31 billion at that point. And they had a great challenge to redesign their supply chain. I was, I am, a geek at the core, an IT manager at the core. And they knew that I knew how to make sales calls. I saw the Digital Equipment integration as a major challenge. I told them I wanted to be in a line-management position downstream, even if it was a lateral move. I came into Compaq, I was supposed to have a 90-minute discussion about supply-chain issues with Eckhard. But as those kind of things go, we had a great meeting and a longer conversation. We came out of that knowing that we would get along. He asked me to come in and meet with the people here; I took time to interview with each of the key people. [I] met with the whole team. U: So you joined Compaq? C: He asked me to join as soon as possible, but I told him Oracle was a partner company of Compaq, and so we worked out a transition. It took over a month; they kept all of my customers. It was a collegial transition, especially important to Oracle. U: What was it like joining an even bigger company just a few miles away? C: I started work, and it was stranger than fiction. We were doing a SAP conversion, and in the middle of that we stopped shipping entirely. It was my baptism by fire. I knew SAP very well, but I went to my predecessor and asked him if he wanted me to get involved. I stayed out of his way for two days, and then I stepped in.

To: Night Writer who wrote (84553)	8/30/2000 7:06:44 AM
From: Elwood P. Dowd	Respond to of 97611

Q&A: Compaq CEO likes healthy competition page 2: As the new CEO So the first week, I looked at the physical flow of products, the docks, bays, etc., right in the firing line. Then I gave them the one to five of what to do. I knew SAP cold. I grew up with SAP; I knew whom to call if I needed any help at SAP. The sales force saw this right away, sensed that I could be helpful in sales calls, so I was dragged into sales calls. Then I was put on a task force on how to strategize Compaq's business around e-commerce. The issue was how to take a look, from the outside, at our e-business. I got involved in lots of stuff during my spare time while actually working as the CIO. U: When did you become president? C: In April of 1998. The board decided to make some changes in that month. I was at a golf tournament for WorldCom (WCOM). It seemed like fun. I'm a nut about staying in touch, however, and I was at this gold tournament with a major client, and there are signs throughout the hotel: Mr. Capellas, call Compaq legal counsel. I thought, oh jeez. I called and they said that there was a major management shakeup under way. Eckhard had resigned, and the office of the CEO had been formed to run the company. So for the next few months, Ben Rosen ran Compaq, and during that period, he began to rely heavily upon me. Other board members got to know me. We had good chemistry as a management team. And one day they said, we want you to be COO, but that it would have to be on a transitional basis because they were hiring a new CEO. First thing I did was to hire Bob Napier; he's first-rate. I knew Napier from Benchmark [where he was the general manager], not socially, but professionally. At that point, there were only 30 to 40 CIOs. We were a pretty tight community. I remembered him and hired him to replace me. U: What happened with Rosen? C: Well, Ben was in a position to see my work while he was interviewing for the CEO position. As he tells the story, while he was doing his interviews, he used me as a benchmark for what they were looking for, so after a while, as these things go, he offered me the job. U: It's been a fairly active period? C: Let's say that I'm playing golf less. My handicap has degraded. Now my wife's game is moving up while mine is moving down. We like to play together. Now we're more evenly matched. I've always had an unbelievable work ethic; I used to think that I worked hard. Now I work hard. U: What did you do first after taking on the role of CEO? C: The first thing I did was to spend a lot of time with Tandem and Digital Equipment groups. I had a different idea about integration for those two companies that we had acquired. Both of these groups knew mission-critical, fault-tolerant computing. We wanted to make Alpha [the DEC processor architecture] the No. 1 in those environments. My first thoughts were to identify what markets we were in and what models we had within the company. The people doing fault-tolerant work were not worrying about color online with MP3 music. We had some very distinct businesses. I thought that we were working against the cultures of our component companies. The fault-tolerant groups had a culture, the ProLiant line of machines. The industry-standard servers were in the server space competing for volume and money with Microsoft and NT. The storage group that we inherited from DEC was in the SAN [storage area networking] market; they wanted to compete with EMC. These were very different market models. U: What did you do? C: I reorganized the company into five global business units, with two service units, with a common sales force. I borrowed the model from Oracle, using a common sales force against different competitors. Against IBM (IBM), Sun (SUNW), EMC (EMC), Dell (DELL), HP (HWP). U: Hewlett-Packard? C: HP is really big in the consumer market. We needed to know who our competitors [are]. What was important was that we don't want to work against cultures. We had to support the different groups: engineering, volume, etc. The second thing was to say that the whole world is the Internet: music, CPUs, consumer devices. We had to ensure that all of the business units had an Internet strategy. How the Internet runs on Compaq devices and how Compaq supports the Internet.

To: Night Writer who wrote (84553)	8/30/2000 7:12:23 AM
From: Elwood P. Dowd	Read Replies (1) \| Respond to of 97611

Q&A: Compaq CEO likes healthy competition page 3: Strategic directions Then there are a number of strategic directions. First, toward simplicity. Second, toward "e-life" use of the Internet with all kinds of devices: computers, television, entertainment. And third, into wireless use of the Internet and electronics on the road. Trends tell us that the Internet is growing along the edge. In that area I want one button [that] does everything or at least lets me choose all options. U: Your board is in agreement with these directions? C: No question. They made changes in management here to get a fresh vision. They wanted a change. Especially in a $42 billion organization, with 62,000 employees and 10,000 contractors, you have to drive change. U: Ed Zander told me in a recent interview that Sun is the leading server company, like their ads say, supporting the Internet? C: The enterprise-server business is 52 percent of our revenues; we sell more servers than anyone else in the world. We sell more Web servers than anyone else in the world. [Sun has] the revenue share. We have the unit volume. Let the games begin [smiles]. I respect them, [but] we definitely have more architectural flexibility. We're also below them in pricing. But we're in fault-tolerant systems, too, and there we'll scale the ProLiant servers up to meet their performance. This is going to be healthy competition. I always respect my competition; that's not to say that I'm not competitive. We have a unique relationship with Microsoft and Windows that allows us to lead in Windows and to drive the market. We have the edge of the Web, volume market [personal computers]. We have storage. Our service organization alone is bigger than Sun. U: Who are your other competitors? C: In the consumer side, it's Hewlett-Packard, Compaq and Gateway (GTW). In the commercial [PC] market, it's Dell and Compaq. In the enterprise market, it's Sun and Compaq. U: Given your size and the number of markets you compete in, who is your nearest single-company competitor? C: IBM. They're the nearest single competitor. Ultimately, IBM and HP are becoming more like each other. But for us, a combination of Sun, EMC and Gateway would be another alignment of companies more like us. The war becomes one of organizations. Sun vs. our enterprise group. Our storage group against EMC. U: How are you going to direct Compaq in market growth? What are your goals? C: It would be a big mistake for us to target some dollar figure. We're going to be the No. 1 [or] No. 2 company in each of our competitive spaces. In an area where we are No. 2, our goal is to get our business back. In the high end, that is going to be tough. For servers, we lead all others as a volume play against others. Look at the Internet infrastructure. There are big machines underlying smaller machines at the edge of the Web. U: What is your international strategy? C: We're in over 100 countries. We have over 20 years' experience. The service component of our business is really tough, and that aspect of our work is elevated [in demands] in global markets. IBM does that very well. I learned a lot from IBM as a customer. In the wireless markets, there are between 800 million and 1 billion people who will use products like ours in Europe. ----------------------- Compaq Computer Corp. at a glance: Founded: 1982 URL: compaq.com Number of employees: 62,000 Exchange/symbol: NYSE/CPQ Shares outstanding: 1.7 billion Market capitalization: $58.9 billion Jerry Borrell is editor in chief of UPSIDE magazine. S