Eckhard Pfeiffer may have lost his job this weekend, but Compaq's problems really began way back in January last year when it announced the acquisition of Digital, analysts said today.
The company's shock announcement yesterday that chief executive officer, Eckhard Pfeiffer and his chief financial officer, Earl Mason, had resigned, was the culmination of what has been a year long downhill struggle for Compaq.
Pfeiffer's departure was almost certainly forced after he and Mason met the Board of Directors on Saturday. It follows only 10 days after the company issued a profit warning for its first quarter, citing a slowdown in PC sales combined with competitive pricing pressures.
Last week he kicked off a shambolic Innovate customer and partner conference in Houston last week. Problems clearly on his mind, Pfeiffer fluffed his lines on several occasions and was unable to answer questions in a coherent manner. Instead, the profit warning dominated proceedings - hardly an inspiring occasion for the 5,000 customer representatives.
Many Compaq watchers are waiting for the hidden story of Pfeiffer's departure. In brief statements to the press, the company has said Pfeiffer was not suited to business in a fast moving, Internet age.
But there may be more to it, not least the fact that the company faces a barrage of class action lawsuits. These accuse it of issuing misleading statements regarding PC sales to artificially inflate its stock price, during which time many senior executives sold stock. (see Newswire 26 March)
Meanwhile, it has failed to achieve the smooth integration of Digital - or 'Compaq East' as many Compaq original employees jokingly refer to it - that the company had originally hoped for. This is particularly true in the server market, where Compaq's Alpha and NT products seem to be competing against each other.
Peter Lemon, senior research manager at IDC, commented: "It really all started with the Digital acquisition. The company has repeatedly told us that the integration of the two companies has gone really well and that it is almost completed, but it's clearly not."
He said that the two companies have ended up working against rather than with each other as their contrasting cultures clashed: "The company is now very much Digital versus Compaq - PCs versus other technologies and Pfeiffer was very much a PC man."
Lemon said he believed that this was one of the main reasons Pfeiffer made his departure yesterday.
"My guess is that it was because he held the PC line all along. Even Michael Dell has admitted that although PCs are Dell's bread and butter, the company needs to look at other things to make the money. The margins just aren't there in PCs anymore."
Andy Butler, research director at Gartner Group, said Compaq's aggressive growth strategy and target of being a $50 billion company by the end of 2000 was damaged by the Digital takeover.
"We were convinced that the Digital acquisition was going to make a plateau period inevitable. The task of getting rid of unwanted products and even people was going to offset all the growth of the original Compaq company. Pfeiffer's departure is the penalty Compaq must pay to the financial analysts for that," he said. IDC's Lemon said he was puzzled as to why Compaq announced Pfeiffer's departure before the release of its long awaited first quarter results on 21 April, but they would be a case of history repeating itself.
"The quarter will be a shocking one for them...At the end of the fourth quarter of 1997, Compaq realised it needed to buoy up the figures and it stuffed the channel. The company has repeatedly told us it hasn't done the same this year, but it is very clear it has," he noted.
Philip Williams, senior analyst at research company Dataquest agreed and said he believes a full reorganisation is needed to pull Compaq back into shape.
"Compaq has got too big to survive in its current format. The Digital acquisition has definitely created problems. I think it will recover, it has the momentum and the revenue streams. However, what is important now is how it is set up and driven. At the moment Compaq is trying to be all things to all people. It needs to be broken down into manageable business units."
Lemon said the company needs to rethink its whole product strategy in order to recover.
"It doesn't have a good handheld story, on the server side it's better but lacks focus, the PC side has been hit hard by Dell. It also failed to go full throttle with Alpha. The company really decides what it wants to do next," he said.
For the time being, Pfeiffer has been replaced by Ben Rosen, chairman of the board of Compaq directors and one of the founding executives of the company, to oversee day to day business until a successor is found.
Andy Butler, research director at Gartner said the company needs to find a new leader fast.
"Like HP there is no obvious successor. It is a perilous situation. Compaq has to sustain partner and customer confidence [while they find someone]. Need to find someone yesterday and the CEO position is not the easiest to fill," he said.
The search has begun, but in the meantime, Compaq investors and customers, particularly those of a Digital hue, will wait nervously for an outcome. The last 15 months for Compaq have been a story of falling growth and share price, resulting in the need for major change - but the jury is out on whether this weekend's events were the answer.
"I cant imagine that all this is going to help," concluded Butler.
To comment on this story, email [email protected]
Privilege escalation bug already being exploited in the wild
NASA's Voyager 2 probe set to reveal secrets of space beyond the heliosphere as it goes interstellar
The probe is now more than 18 billion kilometres from Earth, with equipment enabling it to reveal some of the secrets of interstellar space
Four glaciers located west of massive Totten glacier have lost almost three metres of ice in height since 2008
Ceres, located in the asteroid belt, has a carbonaceous-rich upper crust, SwRI study claims