Kemble,
Hi. According to Dan Niles, "DELL will eat you alive"....who?...what?....per IBD read on: Compaq Must Execute At Net Speed: Chairman
Date: 4/21/99
Author: Nick Turner
After all the upheaval the past 12 days, Wednesday should be a breeze for Compaq Computer Corp.
Thanks to a warning the company made April 9, analysts expect Compaq Wednesday will report earnings of $250 million, or 15 cents a share, on sales of $9.4 billion. As of April 8, analysts expected per-share profit of 31 cents.
Having dispensed with the short-term pain, analysts must now try to figure out how long the current blight will last - and whether new management can restyle Compaq as a fast-growth, Internet-fueled company.
And, perhaps the most pressing issue: Who will be the new top manager?
''We're looking for somebody capable of running a company at a $40-billion-a-year rate and taking it to the next level -where the main driver is the Internet,'' said Compaq Chairman Ben Rosen.
A power vacuum at Houston-based Compaq opened up over the weekend. The board asked Chief Executive Eckhard Pfeiffer to step down on Sunday. He had led the company since 1991, building it into the No. 1 maker of personal computers.
Chief Financial Officer Earl Mason also quit, though Compaq says he wasn't prompted.
Searches to replace the executives are under way. For now, Rosen and fellow directors Frank Doyle and Ted Enloe are serving as co-chief executives.
Rosen insists that Compaq isn't looking for a new strategy. He simply wants better execution.
The situation at Compaq is nothing like it was in 1991, he says, the last time Rosen sacked a CEO. That time, Rosen asked founder Rod Canion to step aside so the company could take a new direction.
''In '91, it was a total change of strategy. Now we think the current strategy is good,'' Rosen said.
But analysts say a more fundamental change may be necessary.
Compaq is fighting with Dell Computer Corp. to lead the PC market. The new CEO must revamp the company's distribution so that Compaq can be as efficient as Dell's direct-selling model.
In the market for larger, so-called ''enterprise'' computers, Compaq must better exploit the Internet and electronic commerce. Rivals IBM Corp. and Sun Microsystems Inc. have better defined strategies to harness Internet growth, analysts say.
Pfeiffer's turnaround of Compaq in 1991 was dramatic. He hiked annual sales from $3.3 billion to an expected $40 billion this year.
But his task hinged on cutting Compaq's costs and going after an established PC market, analysts say. The new CEO will have a more complex task.
''That was a more narrow challenge than becoming a real enterprise-computing company and revamping a very well-established distribution model - and doing both at the same time,'' said Kurt King, an analyst at NationsBanc Montgomery Securities in San Francisco.
In PC distribution, Compaq has struggled to convey a clear strategy. It's often flirted with the idea of selling its PCs directly to customers, eschewing its network of distributors and dealers.
Some analysts liked the idea.
But Compaq never pulled the trigger all the way. It was wary of alienating longtime distributors. Many customers can be hard to reach without resellers.
Last year, it announced a new PC line that would be sold both directly from Compaq and through dealers. A pact was reached so that even when Compaq directly ships a PC to a customer, resellers collect a fee.
Critics say the strategy isn't as efficient as Dell's direct model. It strikes some observers as half-baked.
''Dell is too good a competitor to make plans and back away from them,'' said Dan Niles, an analyst at BancBoston Robertson Stephens. ''Otherwise, Dell will eat you alive.''
Efficiency is crucial because PC prices are dropping fast.
The average price of desktop PCs sold by dealers fell 16% in the first quarter to $1,278 from $1,520 a year ago, says ZD Market Intelligence Inc.
To offset the skimpy profits of lower-priced PCs, Compaq and others depend on the higher profit margins of larger server computers. But server prices are now dropping even more dramatically than PC prices, says the La Jolla, Calif.-based research firm.
Average first-quarter server prices fell 31% to $3,942 from $5,704.
The new CEO also must remake Compaq's image as a full- service computer company.
On paper, Compaq already fits the bill as a diverse computing giant. It bought Digital Equipment Corp. in June, nabbing a high-end computer business, a sizable technology-services staff and an Internet portal called AltaVista.
But many customers aren't aware of Compaq's capabilities, company officials admit.
''People still think Compaq is a PC company,'' Rosen said.
The boom in electronic commerce should be a windfall for Compaq. But Compaq focuses more on how to move around PCs than on the potential of the Internet, some critics say.
''There needs to be a lot more Internet expertise at the top of the company,'' King said. ''It's now is driven too much by individuals whose expertise is moving boxes.
''It's not too late for a company like Compaq, provided it's got the right leadership.''
Finding the top leader will be the first step. Most analysts expect Compaq to look outside the company. They cite Rick Belluzzo, chief executive of Silicon Graphics Inc. and a former top executive at Hewlett-Packard Co., as a possibility.
HP, meantime, also is looking for a new CEO. That means two of the world's three largest computer companies (along with IBM) are looking for new leaders.
Rosen says he isn't worried about a dearth of top-flight CEOs.
''There's a lot of people in this world - a lot more than two,'' he said.
(C) Copyright 1999 Investors Business Daily, Inc.
Metadata
----------------------------------------------------------------------
I know this is old new to all of us on the DELL thread, but what else is new? Maybe the rest of the world will someday appreciate DELL the way we longs do.
Let's Go DELL!
Steve |
