By William Fellows
Wall Street is still undecided on whether Compaq Computer Corp CEO Michael Capellas is the right pick, mainly because he’s not had much exposure to the analysts who follow the stock. He’s less proven than Carly Fiorina at Hewlett-Packard Co and the impression is that Compaq couldn’t attract a heavy hitter from the outside. Then again, Lou Gerstner was IBM’s fifth choice. If it turns out that Compaq’s problem for the most part has in fact been execution as Compaq chairman Ben Rosen has been saying, then Cappellas may well turn out to be the right guy for the job. However, if it turns out that Compaq’s problem is equally a strategy one, then this may prove not to have been the right decision. When the issue is strategy and vision, that’s when an outsider can potentially make a bigger difference, says Merrill Lynch & Co’s Steve Milunovich.
We think Capellas must answer the same fundamental question his predecessor failed to do, one that we have been asking for months: What does Compaq want to be? To many eyes it looks like a PC company which has had some awkward looking enterprise prosthetics grafted onto it.
Capellas at least did set the record straight on the channel model. It is moving from hybrid to direct. It will be at 20% by year-end from 15% now and is aiming for 40% long-term. Direct is cleaner and simpler and easier to manage, so the theory goes. Before joining Compaq as CIO last year, Capellas was a general manager at Oracle and was responsible for the company’s global energy business. He reportedly grew the business by 100%. Frank Doyle and Robert Ted Enloe III will remain Compaq directors; Ben Rosen remains chairman.
Meanwhile, just how much trouble was Compaq in by the time the former management flew? Last week we pulled apart Compaq’s balance sheets and showed how it’s been in financial trouble since the first quarter of 1998. In addition, we’ve learned that there was a very serious all-hands senior management meeting in Cambridge, Massachusetts in early February. Two levels of VPs attended including John Rose, former head of the enterprise computing group who resigned early last month, plus the level just below him and some directors.
The real topic of the meeting was supposed to be along the lines of whither goest our business. It was meant to be all about long term revenue – not the near term. However, coming out of the meeting, the people with profit and loss center responsibility are said to have come to a realization that they had no visibility into their near term revenue. It was not a cover up – they were simply flying blind, a source said. By this time Compaq was said to have just barely figured out how to forecast the Tandem Computers Inc revenue line – the Digital Equipment Corp revenue was simply invisible to them.
It would appear that they must have lost or fired too many people with too much knowledge. As one Compaq VP commented: We woke up and realized that we had lost too much DNA. Too much of our history was gone to construct a real revenue forecast. The general turbulence has meant, according to sources, meant that company has lost a lot of price control with its major accounts. The Tandem business for example has a declining average selling price. Indeed third parties suppliers say they have telecoms customers bragging about how much better prices they can get on Tandem NonStop Kernel NSK systems than a year ago.
So what does Compaq want to be? It is under more pressure now that Dell Computer Inc is coming good with its enterprise server, storage and workstation story.
