THREAD - INTERESTING ARTICLE ! -The Wall Street Journal -- January 5, 1998
Corporate Focus:
Compaq's CEO Takes Tricky Curves at High Speeds
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Despite Pfeiffer's Accomplishments,
Dell Computer Is Hot in Pursuit
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By Evan Ramstad
Staff Reporter of The Wall Street Journal
HOUSTON -- When Eckhard Pfeiffer's new all-wheel-drive turbo Porsche suffered a small scratch on its underside while in the dealer's care, the Compaq Computer Corp. chief demanded a new car. The Porsche dealer told him the waiting list was two years long.
Mr. Pfeiffer wasn't bowed. Three days later, Porsche headquarters in Stuttgart, Germany, called the dealer to say a new car was on its way. Mr. Pfeiffer had called the chief executive officer of Porsche himself.
Even in an industry rife with demanding executives, Mr. Pfeiffer stands out. After rearranging the corporate computer business in the early 1990s, last year he shook up the home market with systems below $1,000 and bought a high-end computer company that gives Compaq access to new markets. Compaq has even snubbed Intel Corp.: Tomorrow, it's expected to introduce a new line of low-priced computers run by chips of Intel's two biggest rivals. And it has tattled on Microsoft Corp.'s questionable licensing tactics to the Justice Department.
In a rocky year for the computer business, Compaq's sales for 1997 will finish up an estimated 38% to about $25 billion, well above the industry growth average, and earnings will climb about 40%. But Mr. Pfeiffer isn't satisfied. He has set a goal of $50 billion in sales in 2000, a level that would eclipse International Business Machines Corp.'s expected hardware sales. (In light of the Asian financial crisis, he recently added that the number isn't "an absolute forecast.")
Shareholders who bet on Mr. Pfeiffer have been richly rewarded. A share bought for $30.25 on the day in October 1991 when Mr. Pfeiffer was named to succeed company co-founder Rod Canion now is worth about $425, adjusted for splits.
But underneath the growth is a fair amount of turmoil. Despite its size, Compaq has been increasingly threatened by direct-seller Dell Computer Corp.'s climbing market share, and it has scrambled to match Dell's efficient production and low prices. Late in the year, it offered discounts to distributors, prompting some to worry that Compaq was trying to push product out the door. And after being the leading seller of consumer PCs under $1,000 for much of the year, the company slipped behind Packard Bell NEC Inc. in November.
In addition, five of 11 senior vice presidents have resigned in the last 18 months, after five years of stability. "Those who stay with him are in for a wild ride. He will not let up," says Daryl White, Compaq's chief financial officer until 1996.
Mr. Pfeiffer says he asked some to leave -- he won't say whom -- because as executives begin to accumulate wealth, they lose some of their drive. "It's just not what you need in running such a high-growth, tough, challenging business," he says. "Success is perishable."
Despite his competitive intensity, Mr. Pfeiffer, 56 years old, is considerably more private and publicity-shy than many of his high-tech counterparts. He doesn't socialize with colleagues, though he is active in Houston's charity society with his companion, socialite Carolyn Farb. An avid sports fan and tennis player, Mr. Pfeiffer is most animated talking about his beloved Porsches, including a newly acquired 1962 roadster version of the gullwing classic 300SL.
And like those cars, he expects his company to take fast curves at high speeds. When delay after delay kept the company from building its core desktop computers based on customer orders rather than on forecasts, Mr. Pfeiffer exploded last May. "It's clear the organization doesn't have the right sense of urgency," he declared to the assembled managers. Mr. Pfeiffer began devoting two hours of his weekly top staff meeting to the project.
Managers met a July deadline for completing a computer system to handle the orders, which should help Compaq be more efficient. A revamped factory can now turn out a custom-built PC in three to four hours, thanks to a special technique for loading software in six minutes. By the middle of this year, Compaq expects to be turning out all 8.5 million of its annual business PCs based on actual orders.
Even so, its dealer network is still more expensive than Dell's direct-shipping method. To trim that cost, Compaq is cutting back on dealers and shortening the time period in which it will protect dealers against falling prices.
Mr. Pfeiffer also was willing to bypass Intel, the supplier of most PC microprocessors, after Compaq's consumer-group executives in 1996 proposed a line of computers priced at less than $1,000 to reach a broader group of people. Compaq negotiated for 10 months with Intel, but the chip maker wouldn't deliver a processor at an acceptable price.
Compaq went with a Cyrix Corp. chip; Intel later cut prices far enough that an Intel chip powers Compaq's $999 system. An Intel spokesman said the company's price-cutting is driven by the popularity of PCs under $1,000. Still, Compaq's new home and education computers will include systems run by both Cyrix and Advanced Micro Devices Inc. chips. Neither Compaq nor Intel executives will comment specifically on their talks.
With consumer computer prices falling, Compaq executives say the business will stay at about 15% of its revenue. Meanwhile, corporate desktop PCs will fall to about 32% of revenue in 2000 from around 48% now. And servers and workstations are expected to grow to 50% of revenue from 35% as the company develops machines capable of bigger tasks.
One part of that strategy is Compaq's recent $4 billion acquisition of Tandem Computers Inc. Mr. Pfeiffer approached Tandem CEO Roel Pieper and they met for breakfast during Bill Gates' CEO summit in Seattle last spring. Agreeing that the timing might be right, the two began negotiating in German, Mr. Pfeiffer's native tongue. "It made the language of business more crisp, more clear," says Mr. Pieper, who is Dutch but more comfortable with German than English.
With Tandem, Compaq got another $2 billion a year in sales and 4,000 new sales representatives to go along with the 2,000 it has hired in the last year. It also got a company familiar with specialized computer uses, like keeping stock exchanges running. Mr. Pfeiffer would like Compaq to develop more such services, like running big customers' data networks. That leads analysts to think he may be shopping for other acquisitions.
In 1995, Compaq discussed buying Digital Equipment Corp. but couldn't come to terms. Mr. Pfeiffer says it also spent several weekends looking at Apple Computer Corp. that year. More recently, Compaq talked with both Gateway 2000 Inc. and Micron Electronics Inc., hoping to acquire their low-cost, build-to-order PC businesses. Many on Wall Street believe Digital Equipment remains a possibility, because it has a sizable service business, and a standstill agreement between the firms just expired. Mr. Pfeiffer declines to talk about Digital, though he says Compaq doesn't need to emulate IBM or Digital to finish climbing to the top.
Despite the intense pace, Mr. Pfeiffer doesn't show any signs of running out of gas. He is looking beyond traditional PCs and even considering putting Compaq's name on non-PC products, such as WebTV, an Internet connection through the television, and Palm Computing's Pilot handheld computer.
"This is the new breed of computer company," he says. "We are it."
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