Morning victor,
I don't think Win 2000 will have much of an impact in 1999
due to more fears about Y2K. I think it may boost sales in
2000 depending on what enhancements are made, the benefits,
and what operating system will be the os of choice, i.e. Linux.
Compaq's Pfeiffer comes
out swinging
April 15, 1999 4:53 PM ET
This week was a decidedly mixed bag for Eckhard
Pfeiffer, president and CEO of Compaq Computer Corp.
Amid the usual feel-good atmosphere of the company's
Innovate customer conference in Houston, Pfeiffer had
to wrangle with questions over the company's expected
revenue and earnings shortfall. The news took a bit of
the shine off Compaq's new NonStop eBusiness
strategy, through which the company hopes to deliver
higher levels of availability, reliability and scalability for
customers' Web-enabled businesses. Shortly before
the close of the two-day conference, Pfeiffer sat down
with PC Week's Eric Lundquist, Rob O'Regan and Lisa
DiCarlo and ZDNN's Charles Cooper to explain the
eBusiness initiative and defend the current state of
Compaq.
PC WEEK: Can you fill in some of the blanks on your
new eBusiness strategy -- specifically, why should
customers go with Compaq solutions vs. those offered
by your chief rivals?
PFEIFFER: Clearly in the industry-standard space we
are the preferred brand, as evident by the market share.
Leadership supports leadership and it's clear ISVs like
to work with the high-volume leader.
There is reality behind the
strategy. What did HP really
communicate when they
announced E-Services? IBM has
for an extended period been
running the E-Business campaign
and has developed the credibility
that goes hand in hand with it.
But it comes down to what level of
solution are you looking for? If you
extend the industry standard, then it's a matter of what
does it take to do the job. What is the infrastructure in
the beginning and the future potential for scaling?
PC WEEK: Do you think, in retrospect, you were late in
articulating this strategy?
PFEIFFER: In doing the Digital integration we had to
work through all the material to rationalize, to verify, and
make sense of. Before you step out with such a
message you need to have that done, and that's
basically what we've been doing through the end of last
year and early this year. We were comfortable to come
out with it at this time.
PC WEEK: Do you have ground to make up because
IBM and Sun have both been successful in winning
mind share?
PFEIFFER: Mind share yes, but fortunately we are so
far ahead in terms of installed base. We have not had
the clearly stated and focused message, but we have
been very active. We set out years ago and said let's
go and focus on Web servers, let's take the
industry-standard ProLiants into this space, and we've
been very successful. Could we have done the
eBusiness strategy six months ago? No, we were just
not ready to turn it.
PC WEEK: When would you expect to see revenue
growth from some of the pieces you're pulling together?
PFEIFFER: I would address it from a different angle.
What we are experiencing is really the positive effect of
the Digital integration. It gives us many positive aspects
for the future -- customer base, sales force, the services
organization, the solutions capability and a lot of
technology we simply didn't have.
A lot of it is Internet focused. A lot is server platform,
scalability, availability focused. That's why Digital has
been very successful in mission-critical applications.
How many stock exchanges in the world are now
Compaq? The mix between what runs on Tandem's
Himalaya and what runs on Alpha is amazing.
Once you have the resources deployed in the field and
assigned to major customers worldwide, then you start
seeing the project identification, and then as time goes
on you see the wins. These are clear wins from the
integration of Compaq and Digital. Customers have the
confidence that Compaq has made the commitment.
We're supporting Alpha, we're supporting Unix, and we
continue supporting OpenVMS.
PC WEEK: When would you expect revenues from the
higher-margin products to offset what's going on in the
PC space?
PFEIFFER: We set a target of a 30 percent margin as a
business model. That doesn't necessarily mean each
business is driving that. That is the model we're striving
for. Without the first quarter, we were on the right track,
we were moving up in the third and fourth quarters.
You'll see the numbers when they come out next week
and we'll give some explanation about what happened
this quarter.
I don't know if any of you have any feedback as to what
really happened in the first quarter in the industry.
PC WEEK: We see a contradiction. Everyone agrees
there is price pressure, that everyone is struggling
trying to prop up margins. But Compaq seems to have
fared worse than everybody else.
PFEIFFER: Analysts' estimates were somewhere
around $10 billion. We missed it by approximately $500
million -- that's 5 percent. Let's assume the market
growth was only 13 percent or 12 percent instead of 15
percent -- we don't know that right now -- and we only
maintain share. Then we lost approximately $300
million at best against a $10 billion target. And we lost
the other $200 million in terms of more aggressive
pricing. That's one way to look at it, to put it in
perspective, rather than saying the Digital integration is
not working, the inventory model is not working, the
distribution model is not working. This is all
speculation. Nobody has any facts behind it. It's
certainly not productive because you're not focusing on
the real issues.
PC WEEK: Does the eBusiness strategy change your
approach to the PC business?
PFEIFFER: No. We've confirmed as we have previously
that we will maintain a total focus on the PC spectrum.
Our organization reflects that and that's a very
important priority for us.
PC WEEK: Do you feel you've been able to
successfully leverage the acquisitions of Digital and
Tandem to maximum effect?
PFEIFFER: Not to maximum effect. We've done all the
pieces that you would normally lay out -- merging the
notebooks, the desktops, the standard servers,
integrating manufacturing, the sales operations, the
services. All that was done by the end of the fourth
quarter. There are longer-term projects we said would
take up to a year. These are more physical integration,
efficiency types of things. That includes the entire staff
reduction plan we laid out. We are on target.
PC WEEK: Personally, do you think you've been doing
a good job for your shareholders over the last year?
PFEIFFER: Last year, yes. The stock rose from the
mid-$20s to $48 at the end of the year then past the
$50 line. Then we didn't do a good job for shareholders
by the revenue warning statement that led to the slide.
Dell missed revenues for their quarter to the tune of
$400 million, which came as a big surprise to
everybody. Then HP came out with disappointing
numbers. Then all of a sudden Compaq makes a
statement that was tiny when all is relative. Then
there's the nervousness, and you know the rest.
PC WEEK: Do you think you should have come out
with the warning sooner? There were complaints from
Wall Street that you waited too long.
PFEIFFER: The answer is clearly no. We had to work
through the numbers in order to come out with
something that was the closest approximation we
needed to give. If you err on one side or the other -- you
just cannot let that happen. We had a number of
analyses to run before we decided to step out and
make the statement.
PC WEEK: If this is an industrywide problem, what
must you do to make sure it's just a blip on Compaq's
screen?
PFEIFFER: What we'll have to see at the end of the
quarter is what has been the market growth. How has
everybody done? Who has gained share, lost share --
that will be an interesting aspect. I'm not speculating on
these numbers, I'm just waiting for the data to come
out. Only then can we determine what really happened.
We're talking about it as though it's the all-defining
moment. It was a miss vis a vis an analyst's estimate.
PC WEEK: Can you characterize the state of your
relationship with Microsoft?
PFEIFFER: I can with one word: outstanding. It's been
very good and very strong for an extended period.
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