Compaq Insider Will Lead Troubled Firm

After a difficult three-month search, Compaq Computer on Thursday tapped a fast-rising insider--Chief Operating Officer Michael Capellas--to become chief executive and president, charging him with the daunting task of resurrecting the fortunes of the floundering, $31-billion giant.

The promotion of Capellas, 44, comes during a tumultuous period for Compaq following the forced resignation of Eckhard Pfeiffer as its chief executive in April and the subsequent departure of several high-ranking executives.

Since Pfeiffer’s ouster, the company has endured a sometimes embarrassing search for a new leader. One candidate withdrew from consideration and several others questioned whether it was a job worth having amid the company’s turmoil. Adding to the unattractiveness of the job was the oversight of Chairman Ben Rosen, the co-founder who had forced out two Compaq CEOs, Pfeiffer and Rod Canion, in less than 10 years.

But at a news conference Thursday, Rosen spread the message that Compaq is leaving its troubles behind and starting a new era under Capellas’ leadership.

“In the end, our choice was easy. Michael Capellas stood head and shoulders above the rest,” he said. “This is the only offer we made.”

Rosen said one of Capellas’ key strengths is that he is already familiar with the company.

“Michael has a distinct advantage in that he is already doing what needs to be done,” Rosen said.

But some analysts called the choice disappointing. Because of Compaq’s size and the scale of its current troubles, many had expected the company to seek a powerful, big-name chief executive who would have the experience and credibility to move forcefully in putting its business in order.

Capellas, who had distinguished himself in the transition period after Pfeiffer’s departure, is largely an unknown quantity on Wall Street, said Jonathan Ross, an analyst with ABN Amro in San Francisco.

“The Street is probably not going to be overly enthusiastic, because they want a big name,” he said. “If Compaq really wanted someone inside, they could have picked him months ago.”

Capellas came out of the blocks promising to bring a clearer focus and higher energy to the world’s largest maker of personal computers.

“The key is that every employee wake up in the morning knowing exactly who their customers are and who their competitors are,” he said. “We hit the ground running and we start today.”

Still, the news of Capellas’ promotion was greeted with a sigh of relief from industry analysts who had watched Compaq drift.

“Just naming someone is a positive step forward,” Ross said. “They were bleeding a little bit and needed to do something.”

The announcement of Capellas’ promotion came after the stock market closed. Prior to the announcement, Compaq shares fell $1 to close at $25 on the New York Stock Exchange.

Despite Rosen’s highlighting Capellas’ knowledge of the firm, he is a relative newcomer to Compaq, having arrived less than a year ago to become chief information officer.

Before Compaq, Capellas worked at Oracle Corp., SAP America and the oil field services company Schlumberger Ltd.

Capellas was named chief operating officer in June after Pfeiffer’s ouster. He was put in command of reorganizing the company into three global divisions: business systems, personal computers and consumer products.

Rosen said the board had originally decided to look inside and outside Compaq to replace Pfeiffer, but Capellas’ work during the transition launched him to the top of the candidate list.

Meanwhile, it had become clear that finding a top-name outside candidate would not be easy.

Continental Airlines President Greg Brenneman was one possibility who withdrew his name from consideration, saying only that he is happy with his current position.

The job of leading Compaq had taken on the aura of being a bigger headache than it was worth.

Compaq has been struggling over the last year with declining computer prices and the transformation of the business brought about by the Internet. It has also lost market share and sales to companies such as Dell Computer that sell computers directly to buyers rather than through retailers--a cheaper and more efficient method.

Pfeiffer ran Compaq successfully for eight years, increasing the company’s revenue from $3.3 billion to $31 billion. By the beginning of this year, however, it had become clear that the firm needed a new strategy to compete in a world where computers are given away and new competitors are sprouting up.

Analysts expect Compaq to lose 15 cents a share in the second quarter.

“The board made it clear we felt a change in leadership should be made,” Rosen said in April. Pfeiffer “understood and elected to resign.”

Capellas said he has taken on the job with no promises of a grace period through the transition or any other special arrangement.

“I have sought no assurances,” he said. “I would not go into this job if I thought I needed assurances.”