Compaq Ousts CEO; CFO Resigns
The board of Compaq Computer, the world’s largest personal computer maker, ousted Chief Executive Eckhard Pfeiffer over the weekend in a bid to shore up its eroding stock price and credibility on Wall Street. The company’s chief financial officer also resigned.
Compaq co-founder and Chairman Ben Rosen said the board told Pfeiffer on Saturday that his performance wasn’t good enough. During Pfeiffer’s eight-year tenure as CEO of the company, revenue increased from $3.3 billion to $31 billion.
“The board made it clear we felt a change in leadership should be made. He understood and elected to resign,” Rosen said.
Despite a surprise announcement earlier this month that Compaq would fall far short of earnings expectations for the quarter, Pfeiffer, 57, maintained last week that his job was not in jeopardy and outlined a new strategy for the company.
His sudden fall illustrates the difficulty of transforming the biggest companies in the industry as prices for consumer PCs and low-end corporate computers sink.
Rosen will lead an interim team of three directors in controlling day-to-day events at Houston-based Compaq until a new CEO is named, a process that Rosen said in an interview will take “realistically, several months.”
A German-born accountant and Porsche fancier, Pfeiffer was recruited to Compaq from Texas Instruments by Compaq’s only previous CEO, Rod Canion. He took over the top job after Rosen and other directors forced Canion out.
Pfeiffer couldn’t be reached for comment Sunday. He said in a statement that “under Ben’s guidance, I know this company will realize its potential, transforming the industry yet again.”
Last week, Pfeiffer told thousands of Compaq customers gathered for a biannual conference that the company had a new vision and would recast itself as a one-stop shop for the largest corporations seeking higher-performance computer servers, software support and advice to conduct business on the Internet.
Rosen said Sunday that vision was a sound one. “We have breadth of technology and capabilities in the Internet that are second to none,” he said, especially after the acquisitions of Digital Equipment and Tandem Computer in the last two years.
But he said the company needs to better execute the business vision.
On April 9, Compaq said that it would make less than half the profit that had been projected for the quarter that had just ended. That was the third time in four years that the company warned of a first-quarter shortfall.
“That certainly is one of the factors that entered into the board’s decision,” Rosen said, adding that industrywide problems also contributed to Compaq’s profit problems.
Credibility on Wall Street was another driver, analysts said. As recently as January, Compaq and resigning Chief Financial Officer Earl Mason were painting a rosy picture of its computer sales.
“It’s a standing joke among Wall Street people,” said analyst Dan Niles of BancBoston Robertson Stephens. “If the question is, do you trust the information coming out of Compaq, the answer is no.”
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Niles and Kurtis King, an analyst at NationsBanc Montgomery Securities, said that Compaq has the depth of management and other resources, including 27,000 service staff picked up from Digital, to turn itself around.
“I don’t see why it can’t be one of the two or three top computing companies in the long run,” King said. “Between now and then, the company’s going to have to rise to a new level in terms of near-term execution.”
Like Hewlett-Packard and IBM, Compaq has been hurt by direct sellers of computers, such as Dell and Gateway, which can charge consumers less and still profit by avoiding retailer markups. IBM lost $1 billion on its personal computer business last year.
But while IBM and HP have mainly stuck to their strategy of using the retail channel, Compaq has wavered, angering some of the resellers it can ill afford to alienate.
“What Compaq presents [to a potential CEO] is the opportunity to turn around what is truly an enterprise-class company that has not been able to articulate its channel strategy,” said Ashok Kumar of Piper Jaffray.
The analysts said they expect Compaq shares, which have fallen 44% this year, to climb Monday from Friday’s close of $23.63 on NYSE.
“This is definitely positive,” Kumar said. “If the stock is not at an absolute bottom, it’s very close.”
