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Compaq to be reborn?
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April 20, 1999: 3:48 p.m. ET
Pfeiffer's ouster marks need to shed its past after blazing 17-year growth spurt
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NEW YORK (CNNfn) - Flailing amid the ouster of its top executive, Compaq Computer Corp. finds itself at another make-it-or-break-it crossroads of the sort it knows all too well.
The snap resignations of Chief Executive Eckhard Pfeiffer and financial lieutenant Earl Mason, bring into stark view how mercurial a company's position atop the fast-moving world of PC firms can be.
In just 12 years, Compaq went from the drawing board to become the world's leading PC maker. But that mind-boggling rise into the top rival of longtime computer standard-bearer IBM (IBM) has been full of fits and starts.
That's what shareholders at the Houston-based PC leader, in a chance to pore over the rubble left by Pfeiffer's departure, will have to mull at Thursday's annual meeting.
Faced with a new distribution model spearheaded by even younger rivals, Compaq now has to reinvent itself again -- or continue to swelter and perhaps even perish.
While young compared to IBM, Compaq increasingly began to look like the old-timer of the PC world next to sprightly rivals Gateway (GTW) and Dell Computer (DELL), which pioneered the hot direct-sales model.
The latest in its legacy of growing pains came 10 days ago, when the company said its first-quarter earnings would come in less than half what Wall Street analysts had expected.
That was largely the spur that caused the Compaq bronco to buck Pfeiffer on Sunday.
Top brass at Compaq, including Chairman Benjamin Rosen, didn't buy Pfeiffer's line that PC market troubles overall were to blame for the company's woes. Rivals such as Dell and IBM had been hurting, but not as much as Compaq, the board reasoned.
"Compaq has lost ground to Dell; it has seen Dell run circles around it," said Kurt King, an computer analyst at NationsBanc Montgomery Securities in San Francisco. "Eckhard was not able to crack the code on how to beat Dell."
Back to the drawing board
As it did after a leadership shake-up earlier this decade, Compaq will have to recast itself out of the shards of Pfeiffer's tenure. But many analysts say a comeback is possible.
"Ben Rosen has shown a lot of savvy in the past about changing the horses at the right time -- now the question is whether they can really take it to the next level," said Donald Young, an analyst with PaineWebber.
Young is one of several voices who say Compaq must juggle its need to tap in to the direct-sales market while keeping its base of vendors. And the company also has to open up the build-to-order model of Dell.
"The company was addicted to a particular revenue stream and distribution model," said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison.
"Remember, Pfeiffer came from the sales organization in Compaq before he became the CEO and it was hard for him to make a mind shift to a different kind of distribution model," added Mazzucchelli.
Herr Pfeiffer's legacy
The woes at Compaq that toppled Pfeiffer masked what has been by most accounts an impressive leadership run by the 57-year old former Texas Instruments marketing executive.
German-born Pfeiffer, at the time chief operating officer at Compaq, took over from CEO and Founder Joseph "Rod" Canion back in 1991 amid a budding U.S. recession.
Pfeiffer went about slashing gross profit margins and initiating a price war with IBM -- and by 1994 Compaq became the world's top seller of PC's.
In Pfeiffer's first six years at the helm, Compaq's sales per employee, which had been on a decline in 1989 and 1990, soared 269 percent to $828,000 a year.
Cementing its leadership via the buyout trail, Pfeiffer nabbed Tandem Computers Inc. and Digital Equipment Corp.
The moves doubled Compaq's payroll, while bringing annual sales to $31 billion, for nearly a 10-fold gain since Pfeiffer took over.
Birth by paper place-mat
The rapid growth curve under Pfeiffer was similar to the blazing appearance of Compaq onto the PC-making scene in the early 1980s.
Compaq was born in February 1982 by Canion, Jim Harris and Bill Murto, former Texas Instruments engineers, who mapped out plans for the company's first portable PC on a place mat at a Houston pie shop.
They pitched their idea to the high-tech venture capital firm of Rosen's Sevin Rosen Partners, which bit and then agreed to bankroll Compaq's growth.
From that humble beginning as a maker of IBM-compatible portables, Compaq roared on to the nascent computer scene: two years later, when it went public, the company tallied sales of $111 million.
Compaq displayed an ability to stay ahead of the game in technology: for example, in 1983, it unveiled a 28-pound portable computer with Intel's 386 chips, a year and a half before IBM did.
And by 1988, nudging in on IBM's supplier and distributor networks, Compaq garnered sales of more than $2 billion. But then, with a U.S. economy headed toward recession, sales began to plateau.
-- by staff writer Jamey Keaten
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Compaq Computer
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