Rather than regurgitate, here's an article containing an interview with Earl Mason...much of it concerns the merger with DEC, and some of it is about Compaq in general. Services is one key element. Mason hints at more but doesn't get specific, and says the strategy will be made public after closing the merger. There are many other articles, pro and con, which offer their analysis of the merger and the conclusion that I draw from all of them is that the merger will be a good thing...but that it may not bear fruit until mid 1999. Mason, in this interview, expects positive earnings from the merger by the end of this year. I expect the merger to be a big plus for CPQ, and I suspect that Compaq will take what they need from Digital and discard the rest. I believe that Compaq will come out looking a lot like IBM, and since I'm long CPQ, I also hope that the share price will come out looking like it too. :) I can wait a few years.
Compaq CFO Speaks On Digital Merger
(02/23/98; 8:19 p.m. EST)
By Joe Wilcox, Computer Reseller News
CRN associate editor Joe Wilcox recently spoke with
Compaq Computer chief financial officer Earl Mason
about the $9 billion proposed acquisition of Digital
Equipment, Compaq's channel strategies, and his role
as the No. 1 PC-maker attempts to transform itself
into an enterprise computer company with extensive
service and support offerings.
What can your channel expect from Compaq in
light of the Digital acquisition?
Our goal for the year 2000 is $50 billion in
revenue, half of which is made up of enterprise
revenues. The challenge to the channel and to
ourselves is to expand the size of what I'll call our
distribution planes so the growth profile we need is
delivered. Our channel partners are figuring out
different ways of attacking different market segments
that they touch and, of course, we're figuring out
different ways to support that attack. That discussion
is going well from a competitive point of view and,
again, our relationships with them are outstanding as
far as I'm concerned.
What role will you play in the Digital
acquisition?
I spend a fair amount of time with my
teammates. I specifically allow time on my calendar
every day so I have good teammate involvement as
we go forward. That pretty much eats up the day,
from 7:00 to 7:00 as they say.
Eckhard has asked the three of us underneath his
umbrella of guidance to undertake the assimilation of
Digital Equipment. People he asked to participate are
John Rose [senior vice president of enterprise
computing], Hans Gouch [senior vice president over
human resources], and myself. The three of us, again,
under Eckhard's leadership, are putting together
different strategies, working with the Digital people
where we can under legal constraints naturally, to
assimilate that particular company into our company.
This assimilation activity will be quite a bit different
from Tandem. One thing we're very focused on is
making sure our core business continues to grow at a
rapid pace as it grew in 1997. We have a technique to
do this, which I can't get into, to do this in a very
different way. But we're very confident that what
we're about to do makes a lot of sense and adds value
to the existing Digital customer set as well as the
Compaq customer set and adds value to our
shareholder base.
Don't you foresee logistical problems
assimilating Digital?
If we did nothing [in the Digital acquisition],
there would be problems. We have a plan which we
said in New York we will unveil at the time of closing.
It will become clear to the world what we are going to
do to have this assimilation happen rather rapidly. As
we said in New York, the Digital acquisition will add
to our earnings by year-end.
How important is Digital's services organization
to Compaq?
The services piece we're picking up from Digital
is a key positive of the acquisition. That is a very
profitable operation inside that company.
How does Compaq's NT strategy impact
Digital's existing customers?
We intend to support Digital's customer base.
No customer of Digital should worry about us walking
away from them, because that's not going to happen.
It would seem that the new Compaq has
longtime rival Dell Computer at a disadvantage. How
do the companies stack up?
I don't like to compare myself to a Dell, because
they have a very limited product line in this point in
time and they really don't touch the enterprise like we
do.
What are the three of four most significant
things Compaq has done during your tenure?
We're working with our channel partners to
provide the best value proposition to the customer.
The key thing you have to understand is that the
measurement system, the return on investment system,
I believe, spurs a lot of the right re-engineering efforts
and behaviors we've seen played out with our channel
partners.
For example, the ODM program is a key effort that
came out of some of the ROIC thinking to reduce our
cost structure so we could share some of those things
with our customers and some of them with our channel
partners and some of them with our shareholders. The
key programs under ODM include build-to-order,
configure-to-order, and the channel configuration
programs. Those are key re-engineering efforts with
our channel partners right now that are taking costs
out of the channel and taking the cost out of Compaq.
And the winner is our shareholders and our overall
customer base.
Another major set of programs inside the company is
Compaq's OSM, our services model. The efforts help
lead to Compaq's decision to acquire Digital
Equipment Corp. and some of our strategic thinking
around the importance of services as an overall
program in this company. If you look at Compaq prior
to Digital, and of course we don't own Digital yet, we
are one of the major computer companies without a
major services P&L. Of course, with the acquisition of
Digital we will. We will be able to provide our
customers much more of a services offering along with
our channel partners, I might add. Our channel
partners, along with our internal services people, are
going to write the rules of engagement so that we can
complement each other, providing services to our
customers as opposed to any one group going off and
doing it on their own.
Last year, we established Compaq Capital Corp. That
corporation provides financial services to our
customer base and our channel base. That's being
rolled out now around the world. It's up and running
now in North America and Europe, and now, Asia.
South America is next. That program provides
different pricing plans as well as asset management
services to our customer base.
What other initiatives are underway?
We're also expanding our product offerings. Of
course, we're No. 1 in PCs in the world and No. 1 in
enterprise servers in the world. Our NT workstation
growth has been phenomenal. You will also see us
become more of a player in the storage space as time
goes on.
We continue to grow our communications business,
though it be small right now, it is growing at a
tremendous rate inside the company. Strategically, you
should watch this as time goes on.
Are you saying we should watch for a
communications acquisition anytime soon?
We have two rules when it comes of acquisition:
Rule No. 1 is the cumulative worth of future synergy's
has to be much higher than any premium we are willing
to pay. Rule No. 2, which is equally important, is we
have to have the bandwidth inside the company to
assimilate the acquisition as fast as we possibly can.
Although we have the financial capability for another
one, the bandwidth part is used up right now
assimilating Digital.
One of your competitors said customers were
resisting channel assembly because there was no
finished product for them to see. How is your program
going and is this a problem?
As per schedule, [the channel assembly
program] just started up in three resellers right now
and it's being migrated to nine overall in North
America. In fact, a lot of our channel partners are
taking the lead on that acceleration right now.
As we approach the year 2000, more and more CIOs
are changing out their entire hardware base. And there
is a backlog of these NT migrations received for the
year 2000 building up. So availability is important to
them.
OK, so how is Compaq doing on the
availability front?
There is a right level of availability that needs to
take place instead of having so much inventory that
you just load up warehouses. That's not the objective
here. You have to be very predictable and available to
the customer needs. All of our channel partners are
working with us to make sure that happens.
We've improved our predictability since we started
implementing our overall ODM program. We've more
than doubled our predictability by the company.
We've improved this significantly. We're not finished
yet. We have a lot more efforts to go with our channel
partners to get predictability up so that when a
customer wants it, they can get it very rapidly from
Compaq.
It would seem the Digital acquisition is a play to
drive NT into the enterprise. Is this Compaq's goal?
We've been a champion of NT. We will
continue to be a champion of NT. The Digital
customer base does not have to worry because we
intend to support the existing base as well as the Unix
and OpenVMS that is out there. I know what it's like
if you're running part of your factory in VAX clusters
and all of a sudden they're not supported. The
customer base does not have to worry we're just
going to walk away from them. We also intend to offer
the best value proposition to that entire customer base
as we go forward. The market in general will sort out
what it wants to use over time.
Does Compaq plan to leverage Digital's
skill-set to migrate large Unix installations to NT?
I think it's early to talk about that in depth over
time. That is something to talk about in detail from
both companies when the deal closes.
What is your most important role at Compaq?
My role at Compaq is just another team player.
I have a number of assignments at Compaq that are
operational and financial in nature. I consider myself
our team's biggest cheerleader.
In April of last year, Eckhard [Pfeiffer] asked me to
take leadership over our overall ODM [Optimized
Distribution Model] efforts. We did that and those
efforts led to a lot of work with our channel partners
around BTO [build-to-order], CTO
[configure-to-order], and our channel configuration
efforts. That's an example of an operational effort,
what I call a horizontal team to re-engineer some of
our distribution, manufacturing, and sales throughout
the world.
How would you characterize Compaq's
relationship with the channel?
Our relationships with the channel partners right
now are excellent. We certainly consider them a part
of our extended team at Compaq and we know many
of them consider us part of their team.
What is your typical day like?
On a typical day, I arrive at work at 7 a.m. and
leave at 7 p.m. It usually starts with a review of
shipments from our previous day and reviewing a
number of different metrics throughout the world. I
spend a lot of my time trying to influence things that
have to happen in the company, inside the company
and outside the company. That involves a fair amount
of customer contact. I meet with at least three CIOs a
week to get their perspectives on satisfaction and on
where the company needs to go. And of course, I
speak with our channel partners, one or two of them
every week.
What should VARs know about dealing with
CIOs?
I was a customer of Compaq and other
companies a couple of years back, and I can tell you
that most CIOs are interested in adding to the general
productivity of their individual companies. They're very
focused on providing cost reduction and providing
availability to their user base. That's what we focus on
in terms of the programs we offer at Compaq.
Availability right now is what I would say is the No. 1
CIO concern in the world. Our channel partners
understand that and of course our team here at
Compaq understands that.
What are some of your daily financial
responsibilities?
There is usually a fair amount of Wall Street
activity throughout the day. I work with our investor
relations organization and talk to different large
shareholders. When you're helping manage a large,
growth organization, there are always questions about
what's going to happen the very next day. So we try to
keep our shareholders and the analysts informed as
much as possible about what our actions are going to
be. That allows them to make the proper judgments
on their stock ownership. So we're focused on
growing the company, so there are always a lot of
product reviews and strategy reviews that take place
in the company and that involves my time.
Compaq has seen tremendous growth recently.
How has CEO Eckhard Pfeiffer facilitated this?
Eckhard is a superb business partner. He is a
wonderful leader and great motivator. He believes in
stretch goals of the team. The team reacts like the
speed of light. When I got here at the end of May in
1996, we changed measurements of the company to
return on investment capital. Literally, this team in one
month implemented a complete change of
measurement across the world for all of our
subsidiaries like I've never seen before in my business
career. When I say I'm our team's biggest cheerleader,
what I mean by that is they do things so well and so
fast that it gives us the competitive advantage above
any other player in the industry.
The team really likes one another. When you have a
good melting team and everyone understands their
role, people can come together and implement things
really quickly. And that to me is a core competency of
Compaq Computer. |
