A Year Ago: Pfeiffer out as Compaq CEO

Originally published Mon, 19 Apr 1999 08:12:12 GMT

In a stunning fall from the top of the personal computer industry, Compaq Computer Corp. said Sunday that CEO Eckhard Pfeiffer has resigned.

Compaq CFO Earl Mason also resigned, saying he planned to take a top job at another company.

The move comes just 10 days after the Houston-based computer maker warned of lower-than-expected profits.

Pfeiffer's exit resembled the lightning strike that hit his predecessor, Compaq co-founder Rod Canion. Canion got the axe on a Thursday morning during Comdex/Fall '91, after the company's failure to respond to lower-priced competitors had dealt it a similar financial whammy.

Canion's departure had stunned Compaq employees at the time. But Pfeiffer, who had headed Compaq's European operations, rallied the company into its current position as the number one PC maker, which had seemed an outlandish goal when he first stated it in the mid-1990s.

Some 'hiccup'

Pfeiffer just last week called the bad quarter a hiccup and said other PC makers were likely in the same leaking financial boat. But both Dell Computer Corp. and Hewlett-Packard Co. executives said they did not see the same slowdown cited by Compaq.

In a statement, Compaq's board of directors said it formed an Office of the Chief Executive to oversee the day-to-day running of operations, effective immediately.

Chairman Benjamin M. Rosen and directors and vice chairmen Frank P. Doyle and Robert Ted Enloe, III, will constitute the Office of the Chief Executive. Rosen, who has served as chairman of the company since he co-founded the company in 1982, will serve as acting CEO and, together with Doyle and Enloe, will be actively involved in the daily direction and operations of the company pending the selection of a new CEO to replace Pfeiffer.

Doyle, a former top marketing executive at General Electric Co. and Enloe, a financial services executive and the second longest serving member of the Compaq board, after Rosen, will be actively involved at the company's Houston headquarters.

A year of struggles

In a phone interview following the announcement, Rosen said Mason, the company's chief financial officer, had resigned in order to take the top executive position at an as-yet-undisclosed company outside the computer industry.

Rosen also said the Houston-based company had been too slow under its previous management in capitalising on market opportunities in the PC business and beyond.

"The computer world is in a lot of turmoil," Rosen said. "The issues are very complex and we felt we really needed a change in the leadership in order to keep our position as the industry leader."

While departing chief executive Pfeiffer had said the first-quarter shortfall reflected brutal competitive pressures throughout the industry, Rosen said the disappointment reflected Compaq's own failed execution.

"In fairness, a lot of it was our fault," Rosen said of the disappointing first-quarter results, which are due to be reported on Wednesday. Compaq warned that earnings will fall more than 50 percent below Wall Street's prior expectations.

"I don't think we executed well," he said of the company's business game-plan for the first-quarter. "I hope that in subsequent periods we can improve on that performance."

"We believe that the strategies that we have in place are fundamentally sound," Rosen said.

Reaction among Compaq-watchers

One analyst contacted Sunday praised the move. "(Compaq's) management is in a funk, and they need direction," said Kimball Brown, an analyst at Dataquest.

Compaq's troubles have come swiftly after years of uncontested dominance at the top of the PC industry.

The company has had difficulty digesting its multibillion-dollar acqusition of rival Digital Equipment Corp. -- a struggle some critics contend caused Compaq to lose focus in its core markets.

Perhaps a bigger problem: Compaq was late to adopt an effective strategy in direct sales, a tardiness that allowed fellow Texas PC maker Dell to take market share away from Compaq.

Brown said that Rosen and his team "need to kill price protection," or the practice of guaranteeing Compaq's PC dealers a certain price for a PC. "Once you sell it, it's sold, and you move on," Brown said. Brown strongly praised Rosen.

The company wasted little time in making changes. Pfeiffer was no where to be seen on the company's management Web page this afternoon.

In a prepared statement, Rosen cited the now former CEO. "Eckhard Pfeiffer oversaw a period of stunning growth in Compaq's history," said Rosen. "All those who benefited from that growth owe him a debt of gratitude."

Pfeiffer, quoted in the same release, said, "Compaq has come a long way since I joined the company in 1983. We are a world leader in personal computing, enterprise computing and Internet applications. Under Ben's guidance, I know this company will realise its potential, transforming the industry yet again. I am thankful to all employees at Compaq for their support and the chance to work with them."

Pfeiffer did not indicate what may be next for him.

ZDNN's Michael Fitzgerald and Reuters contributed this story

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