To the Thread:
Just returned back from the CPQ shareholder's meeting and will share some what I can of the proceedings.
Not much new in the way of revelations. Both issues for vote passed (with EP's name withdrawn from vote as a Director). Rosen gave a 30 min. presentation that summarized highlights of CPQ's position in the industry. The Board is not pleased with Q1 results, but despite those, the company intends to increase market share this year.
The company is a "people" company. In the last 3 days they (The Three Muskateers, as they were called by one shareholder) have talked to hundreds of employees, all who have been very energetic and have creative and wonderful ideas. Unfortunately, the old management regime did not allow this creativity and energy to surface. This will change.
As many on the thread talk about a "dead company" & "sinking ship," please also consider many of the following points that Rosen made:
CPQ is (remains) #1 world-wide in:
Consumer P.C.s
Commercial P.C.s
P.C. servers
Fault Tolerant Computers
Multi-user Storage
64 Bit Computing
(One other that I don't recall)
CPQ holds a technical advantage over all of its competitors in:
Highest performance microprocessors
Clustering Technology
P.C. Server Technology
Internet Search Technology
Storage
CPQ Classic (before Tandem & DEC) last month received its 1000th patent and with Tandem and DEC added owns over 3000 patents.
In short, CPQ has the broadest product line--through services & hardware--in the entire IT industry.
CPQ's Internet Portfolio is broader than any other company in the computing industry. Their commitment to NonStop e-Business will continue. 64% of the market for internet web servers is CPQ, more than twice the size of its closest competitor (SUNW). CPQ powers the world's largest internet e-mail system (no name mentioned). Half of all 911 calls in the U.S. are supported by CPQ systems.
It is clear the company has numerous and significant strengths. It is also clear the company has not executed.
He (Rosen) like us is a shareholder and he is COMPLETELY aligned with shareholders' interests.
Then came the questions:
1) "Will they consider allowing the stockholders of the company to receive, or purchase at the IPO price, shares of AV?"
Rosen: Believe it or not, this is not the first time he has been asked this question. The process if very complicated. There are 2 decisions involved in trying to create a public company: 1)When to create a public company. and 2) How to create a public company. The how to is full of legalities and very complex. (Ie: he is not in a position at this time to answer this question.) The second part depends on value. AV is a search engine, and alone will not have value. To obtain value 3 things are needed: search, e-commerce & media content. AV has the search. Shopping.com and the other company they acquired (I just have forgotten the name) provides the e-commerce. They will not go public until they are ready and when they are ready they will go public AND he will "ASSURE" all that it will be for "very good value!!"(He basically wanted to emphasize that point. And, also, he did not mention anything about media, thus, that is evidently the remaining hurdle.)
The details of how the offering will be done are not clearly defined yet, he "certainly hears what (we) are saying."
Question came back: "Is that a yes or no?" Rosen: He "can't answer, but they will do what is best for the stockholders...remember, he is a stockholder, too."
2)To shorten and paraphrase: Why will EP get away with his parachute? "His severance is in terms with a contract that was made 7 yrs. ago and CPQ will honor that contract. Rosen: They "entered into this contract (EP's severance) when the stock was substantially lower than it is today and the reason EP will receive so much is he has grown this business from 4B to 40B" (in annual revenues).
3) "What will they do to clear up the complicated distribution mess?" "The analysts are pushing for a direct channel like DELL." Rosen: "Distribution is "complexity" to some & "choice" to others." They "are selling $2MM/day over the internet, which is not as large as they want it to be, and they are making major steps to improve & increase this.
4) One complained of lack of user-friendliness of thier web site. Rosen: Agreed wholeheartedly. They "fully recognize the difficulties and problems with dealing with their web site and have already initiated steps to correct them."
5) One guy came from Tokyo and said he has not only been treated poorly in the market (by CPQ), but also has been treated poorly at the offices today." Complained, in detail, about the individual board memebers who have recently sold stock since Jan. Rosen: All sales were in accordance with the company and federal regulations and were subject to approvals internally and with outside auditors.
6) One stockholder suggested a formal connection with AOL. He cited that a yr. ago CPQ could have bought AOL & now AOL can buy CPQ.
7) Another suggested they talk to M. Dell regarding the CEO vacancy. "If you can't beat them, then join them."
8) Another, citing the $1.6BB in Svc. Revs. asked what steps were being taken to make sure that Svc. costs were not increasing disproportionally. The head of Services (John Rando, I believe) answered by citing that IBM's service gross margins are 26% and CPQ's were 32%. Their objective is to drive the top-line growth and maintain their profit objectives.
9) "If the problems with EP go back 15-18 months, why did it take so long for the Board to take action." Rosen: His canned reply...in essence: their is a fine line between acting too quickly and giving one a chance to correct any short-term problems and waiting too long. A response to his response was.."this went on for 5 qtrs. too long."
10) One guy went to a Radio Shack recently and was told there was going to be a "stunning" announcement out soon about CPQ and RS. He asked what that would be. The dept. head that negotiated the RS deal and supplanted a long-term IBM agreement at RS answered: "The 1st yr. of their arrangement with RS exceeded all expectations on both companies' sides by over 50%. They are indeed working on a major announcement, but he cannot talk about it today.
11) "What are you going to do about the crediblity problem with Wall Street?" Rosen: He understands the credibility issue very well from his experience as a securities analyst in years past. In all of their conferenct calls, the last of which was held this morning before the meeting, he has been pressed very strongly for forward guidance, what will they earn?? Rather than give a number prematurely after only 2-3 days in office and risk being wrong, they have elected to wait so they can give a number that will not be missed. (In essence: They want to make sure that their first jump out of the box is not frought with more of the same that EP & EM offered.)
12) A question was asked about restructuring and labor outsourcing. The Exec. VP of HR answered that 85% of the restructuring plan has been implemented and will be completed 100% by the middle of 1999. They will always have to use outsourcing to buffer peaks and valleys in labor needs. They are Houston's largest employer and have to maintain a certain amount of stabilization in their employee base.
13) One guy who I immediately thought must be Elwood--primarily for the 2nd part of his comment) mentioned that they can change the company's name to Compaq.com and then they will not have to worry about making a profit. Then he emphatically criticized the difficulty required to contact a real person in IR, compared it to the ease of such matters with DELL & Gateway and DARED Rosen to try call IR on their published phone numbers and try to get a person on the phone. (I DARE YOU!!!)
14) Seperate comments by a couple of people, one a shareholder since the original IPO, were direct to Rosen indicating they were sure the insider selling that had occured was completely legal, but wanted to know what steps could be taken to ensure that all shareholders, institutional and individual would/could receive the same information regarding the company at the same time. (Ie: could individuals be included in the institutional meetings, breifings, etc.?) Rosen: He "wants all shareholders--insititutional and individual--to receive all information at the same time. To the extent this has not happened in the past it will in the future."
All in all, considering the circumstances, I think the meeting was positive and that Rosen and Co. will get the ship steaming ahead again. Remember, it doesnt't necessarily need to be turned, just fine -tuned WITH its fires stoked a bit (ok, more than a bit). Rosen appears to have a firm understanding of the general issues and, I believe, has disclosed such, honestly and as openly as he can considering the situation. (Ie: Lawsuits abounding, new CEO needs to come in and put his "mark" on the company, etc.)
Sorry for the length of this and any problems that may occur due to its length. (I will pass on spell check for this same reason.) I have never made a post of this complexity.
Cheers to all.
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