Mismanagement May Have Contributed To Compaq CEO's Ouster

It took just a few quarters of lackluster sales beforeCompaq CEO and president Eckhard Pfeiffer left his post overthe weekend in an apparent forced resignation, but toughtimes call for desperate measures. The hardware industry isgrappling with dropping revenue and profits in thecompetitive PC market while it tries to prepare for apotential drop in hardware sales related to year 2000issues. "We're moving into a very tough period [for hardwarevendors]," says Jonathan Ross, a financial analyst with ABNAmro Inc. in San Francisco. "When it comes to Y2Kexpenditures, there's a strong suspicion that hardware maybe sacrificed in favor of software."

To be sure, there are issues unique to Compaq that led toPfeiffer's ousting, say analysts. For one, chairman BenjaminRosen is known for having a low tolerance for perceivedmanagement blunders. Evidence of this was his rapid firingof former CEO and president Rod Canion nearly 10 years agoafter a poor financial quarter, at which time Pfeiffer wasappointed the new CEO. Also, there are some indications thatCompaq's integration of its Digital Equipment and Tandemacquisitions has not gone smoothly. For example, Compaq soldfewer Alpha servers last year than were sold in 1997, whenDigital was a standalone company, according to analystreports. And Compaq was late to the game with a strategy forhelping customers build Internet-based IT infrastructures,which Pfeiffer described at Compaq's biennial userconference last week.

Compaq, which ships more PCs worldwide than any othercompany, could also be losing PC market share tocompetitors. Ed Ellett, VP of PC products in North America,said last week that both revenue and shipments were down forthe company's commercial PC business in the first quarter."[The first quarter] was a little slower than it has beenhistorically," Ellett said. He said Compaq determined theslowdown was related to customer hesitation related to thedelivery of Windows 2000 and the Pentium III chip, as wellas the impact of year 2000-related IT issues, but added thatCompaq believes other hardware vendors faced the sameissues.

However, analysts say Compaq's problems may relate to alarger industry problem, such as a drop in the number of PCunits sold to business customers. Pfeiffer may have leftbecause Compaq's board didn't feel he had done enough toprepare the company for an even tougher hardware industrylater this year, ABN Amro's Ross says. It's unclear whethera majority of vendors are experiencing lower unit sales inaddition to revenue drops, and Dataquest won't know what'shappening with PC unit sales until it completes its study ofthe first quarter next month, says analyst Kimball Brown.