This WSJ article discusses impressive CEO candidates, analyst's opinion and more details. Some positive market stuff. BOLDFACE
April 19, 1999
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Compaq Computer's Board Removes
Chief Executive Officer Eckhard Pfeiffer
By GARY MCWILLIAMS and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
Compaq Computer Corp.'s board, just over a week after a profit warning shocked Wall Street, ousted Eckhard Pfeiffer as chief executive officer. Earl Mason, chief financial officer, also resigned.
Chairman Benjamin M. Rosen, who in 1991 removed then-CEO and founder Rod Canion and installed Mr. Pfeiffer as chief executive, will become acting CEO at the world's largest personal-computer maker. Joining him in an office of the chief executive are outside directors Frank P. Doyle, 67 years old, a retired General Electric Co. executive, and Robert Ted Enloe III, 60, a Dallas executive and longtime director. A search has begun for a permanent successor. Compaq treasurer, Ben Wells, will take on Mr. Mason's duties on an interim basis.
'A Different Skill Set'
"We have wonderful technology and a great team. It's a disappointment that we haven't been able to do better," said Mr. Rosen. The board met separately with Messrs. Pfeiffer and Mason on Saturday, and Sunday asked for Mr. Pfeiffer's resignation, according to people close to the board. "The last two years we haven't been as successful" as Mr. Pfeiffer's first five years as chief executive, said Mr. Rosen. Messrs. Pfeiffer and Mason couldn't be reached for comment.
Mr. Rosen suggested Compaq -- which in the past two years has acquired Digital Equipment Corp. and Tandem Computers -- had become more complicated than it was when Mr. Pfeiffer proved his mettle in a rapid 1992 turnaround. "The company is so much more complex than it was a couple years ago. It takes a different skill set in managing the company as successfully as it should be," he said.
In a news release, Compaq said Mr. Pfeiffer, 57, resigned along with Mr. Mason, 51. The moves come after a series of missteps that began a year ago with huge inventory problems and continued with the announcement earlier this month that profit for the first quarter would be less than half Wall Street's expectations.
Though Mr. Pfeiffer built the company to an expected $40 billion in sales this year from $3.3 billion when he took over, the boardroom coup comes as Compaq faces one of the toughest challenges since its founding 17 years ago: Righting an ever-more competitive PC business that hasn't kept pace with rivals such as Dell Computer Corp., while transforming itself into a full-service computer company selling packages of computers, software and services.
Analysts Praise Move
Some analysts believe the profit shortfall could have been avoided had the company successfully implemented a build-to-order manufacturing plan sketched out nearly two years ago and a sales-force integration following the June 1998 acquisition of Digital Equipment.
But in an explanation that raised eyebrows on Wall Street, Messrs. Pfeiffer and Mason initially blamed an industry slowdown for the first quarter's profit shortfall. Compaq's earnings are expected to be just $250 million, or 15 cents a diluted share, on revenue of about $9.4 billion. Wall Street had been expecting the company to report profit of $560 million, or 31 cents a share. Final results are to be released Wednesday morning.
Analysts praised the move as signifying a new start in battered relations between the company and Wall Street. "There was so much bad blood between the old management and the Street, there was nothing they could do to fix it," said Ashok Kumar, an analyst at US Bancorp Piper Jaffray.
Mr. Rosen said the board is beginning a search immediately for a new chief executive. "We want someone who has a vision that is operational," he said. As early as 1993, Compaq's board had urged Mr. Pfeiffer to groom potential CEOs, but the company doesn't appear to have internal candidates strong enough for the top job. Gerard Roche, Heidrick & Struggles Inc.'s veteran CEO hunter, is expected to conduct the search, although Compaq may hire a second firm in order to widen its potential pool of candidates.
Potential Candidates
Mr. Rosen wouldn't identify any candidates, but recruiters said a list of possibilities could include Richard E. Belluzzo, chairman and chief executive of Silicon Graphics Inc. since January 1998 and former head of Hewlett-Packard Co.'s computer organization; Richard Notebaert, the head of Ameritech Corp., a major telecommunications company that is being acquired by SBC Communications Inc., parent of Southwestern Bell; and James McNerny, a top GE executive seen as the possible heir to longtime chief Jack Welch.
In addition, two senior executives at International Business Machines Corp. -- John Thompson and Sam Palmisano -- are seen as potential candidates, along with Percy Barnevik, the highly respected former head of ABB Asea Brown Boveri who now is helping to run Investor AB, a Swedish investment company controlled by the Wallenberg family.
Compaq, says the company's former strategist Robert W. Stearns, is "stuck in the middle of a business model that the current management has had a difficult time getting through." The first hurdle for the next CEO will be to unravel the complicated distribution system that has been created in the past year. Compaq recently reversed course on a line of PCs that were originally intended to be sold directly via the Internet and telephone. After dealers protested, the company made the machines available to resellers, adding to the sales costs and undermining investments in its Compaq.com Internet sites.
'Difficult Choices'
The next executive also faces challenges integrating the $9 billion acquisition of Digital Equipment, which the company has promised would add to earnings. But it is now perceived as having been a drag on first-quarter results. "There are difficult choices there on what to continue to fund and what the business is about in the future," said Mr. Stearns, now a venture capitalist with Sternhill Partners.
Mr. Pfeiffer was paid $1.5 million last year in salary and got a $3 million bonus, less than his bonus in 1997. According to the company's proxy statement, he is entitled to a severance payment of four times his base salary under certain circumstances. He also owns about 10 million shares, including 9.5 million exercisable options that were valued at $340 million when the proxy came out in early March.
William C. Conroy, an analyst at Sanders Morris Munday, said investors may perceive the boardroom coup as "reflecting the depth of the problems. On the other hand, it's the beginning of a fresh start." But with the stock Friday trading more than 50% below its 52-week high, any swing Monday "won't be major either way," he said. Compaq's shares were unchanged at $23.625 on the New York Stock Exchange on Friday.
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