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As CEO and CFO Resign, Co-Founder Leads Interim Team
at Compaq's Helm
By John Schwartz
Washington Post Staff Writer
Tuesday, April 20, 1999; Page E01
Benjamin Rosen had a problem. The high-tech company he co-founded,
Compaq Computer Corp., appeared to be losing its way. The personal
computer market was being swarmed with players who were pushing
prices down, and costs at the once-nimble Compaq remained stubbornly
high. It didn't meet Wall Street's earnings expectations.
Rosen acted decisively. He ousted the head of the company and gave the
job to . . . Eckhard Pfeiffer.
That was 1991, and Pfeiffer replaced Rod Canion, the man who
co-founded Compaq. Now history has repeated itself, and it's Pfeiffer, 57,
who's out of a job, his resignation announced abruptly on Sunday. The
company's chief financial officer, Earl Mason, 51, also resigned.
The board of directors created a three-member "office of the chief
executive" with Rosen and board members Frank P. Doyle and Robert
Ted Enloe III to handle day-to-day operations until replacements could be
found.
In a conference call with industry analysts yesterday, Rosen would not give
specifics on the reasons for Pfeiffer's ouster or his plans for the future.
"We've been on the job for about 18 hours," he said.
Rosen, 65, insisted that the company he helped found in 1982 with
venture-capital money was still very much on track. "Compaq's strategy is
fundamentally sound," he said, though "we plan to examine every issue" at
the company to return it to full strength.
In the first day of trading after the announcement -- a day when other
high-tech stocks took a pounding -- the company's stock fell slightly.
Compaq shares lost 87 1/2 cents to close at $22.75 with 38.6 million
shares traded; it was the second most actively traded stock of the day.
Compaq stock has been as high as $51.25 earlier this year.
The triumvirate at the top said it intends to move quickly to replace
Pfeiffer; Rosen said the worldwide search is expected to take "several
months." But finding a successor won't be easy. Running the world's largest
PC maker -- with about 71,000 employees and sales in 100 countries --
would be a daunting task even in good times. The company will also be
competing with CEO-less Hewlett-Packard Co. for top candidates.
In the conference call, Rosen insisted his team is "not a caretaker group"
and is "making decisions as of now." He said he will be working full time at
Compaq's Houston headquarters while the search is underway.
The company might look for new leadership within the company, to
Compaq executives such as John T. Rose of the enterprise computing
group, or to computing stars such as Eric Schmidt of Novell Inc. Or
Compaq could find someone from outside the industry altogether,
suggested Ashok Kumar of U.S. Bancorp Piper Jaffray.
IBM took that path when it hired Louis V. Gerstner away from RJR
Nabisco Inc., and despite initial skepticism, the computing behemoth has
remade itself as one of the biggest threats to Compaq's market dominance,
Kumar said.
Compaq's woes come at an especially brutal time in the historically
cutthroat PC industry. Sales of computers that use the Microsoft Windows
operating system have slowed and revenues have dropped in a wave of
price slashing. According to Reston-based PC Data, the average price for
Windows-based PCs has plummeted to less than $1,000, with the
under-$1,000 market making up more than 60 percent of total PC sales.
According to February figures from PC Data, sales of under-$600
machines are booming, with a 657 percent increase over February 1998;
they now make up 19 percent of retail computer sales.
Compaq has held on to its position as a sales leader, having brought its
own average PC price below $1,000. But it could not eke out a profit on
such machines, said Mark Bates of PC Data.
The company yesterday announced price cuts on many of the machines in
its lineup. But those may not hold up long against competitors new and old
that are also cutting prices. For example, Emachines, a new company that
has become the fourth-largest retail PC maker in mere months, announced
three new under-$600 computers -- including a $399 model.
Along with the pricing crunch, any new CEO will have to deal with
Compaq's recent strategic missteps. Its attempts to compete head to head
with companies such as archrival Dell Computer Corp., which save money
by selling PCs directly to customers, led to friction with retailers. And the
company's acquisition last year of giant Digital Equipment Corp. for more
than $9 billion has yet to show its much-touted benefits, such as profits
from corporate computing services and sales of high-end machines.
The disappointing financial results announced less than two weeks ago, in
which the company said its first-quarter earnings would come in at half of
Wall Street's expectations, were the "icing on the cake, and created the
impetus to oust Mr. Pfeiffer," said David Stremba, an analyst with
Dataquest Inc.
Saving Compaq, ultimately, will not come from hiring one or two stars,
Kumar said. Taking an analogy from baseball, Kumar said the company
requires "not Mark McGwire or Sammy Sosa, but to build a team."
© Copyright 1999 The Washington Post Company
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Very nice to see Schmidt recognized by HWP and CPQ as a computing star !! Now why would Eric even think about leaving his post to tackle a 17,000+ army of boxmaker's and large scale server company where its more a direct sale and commodity/inventory issue, rather than creativity that Schmidt thrives on? GO!!!!!!!! |
