There is nothing unusual about the trade press writing stories about Compaq. It is rare, however, when all these stories appear on the same day, namely Monday, April 19, the day after Eckhard Pfeiffer was forced to resign as company CEO.
But there is much more to the story here than simply another over-paid CEO -- Pfeiffer reportedly accumulated more than $300 million worth of Compaq stock during his tenure -- being forced to fall on his sword. Nor is it solely a Compaq story, because it contains information that will continue to cast a shadow on the computer industry and the IT buyers that support it.
For Compaq, the issues are clear. To break out of the PC and PC server mold, Compaq went on a systems and networking buying binge. It spent $250 million to acquire modem maker Microcom. Then it spent more than $11 billion to buy Tandem Computers and former minicomputer king, Digital Equipment Corp.
Thus, in retrospect the events at Compaq may one day be seen as Pfeiffer’s SOS call sent just before the S.S. Compaq slammed into the shoals, burdened in part by a heavy Digital cargo it’s been carrying around for a year now.
Want to know how well Compaq managed its new assets? I spoke with a friend recently who -- three weeks before -- received his termination notice from Compaq/Microcom after 14 years at the company. He was given a long notice to turn out the lights at Microcom. After owning the company for 18 months, Compaq was shutting the place down completely: Symbolically flushing away a quarter-billion dollar investment.
The week after getting his notice, the same employee got a raise and a bonus from Compaq/Microcom. They didn’t even know he existed except as an employee somewhere within Compaq who deserved a raise and bonus to go along with his termination notice.
I know that is only one anecdote, but I think it makes the point. The Pfeiffer-led management team bit off a lot more than it could chew, let alone digest. Compaq remains one of the most solid, technologically astute computer companies in the world. Now it is in need of an experienced helms person.
But what does the Compaq crisis mean for IT and the industry at large? I think plenty.
Enterprise customers increasingly prefer the build-to-order, lower-cost, PC-direct distribution model of Dell, Micron, et al, versus the build-and-stock-the-warehouse Compaq model. IBM admitted losing a billion dollars with its multitiered distribution model. Compaq can’t wean itself from selling through resellers and stores, both of which have to mark-up a commodity to sell it. It had better learn to quit the habit, and fast.
While systems vendors will continue to make money selling hardware, including PCs, system vendors will also continue the push to remake themselves as service companies. IBM, Unisys and others have done exceptionally well building integration, consulting and other services businesses. Compaq will do the same, likely focusing on an array of Internet and Web business services to leverage its server sales.
PC sales are softening, and I wonder if it is because enterprise buyers see less reason to upgrade? Really, what is it about the current generation of 450 MHz machines that is more compelling than the banks of 266 MHz machines on many desktops and laptops today? Reliable and safe access to the corporate network and the Internet is far more important to PC users and those who manage PCs. Intel and all its PC partners need to think about the value proposition of what they are bringing to market.
The single most salient point of this Compaq crisis that is applicable across the industry and to those associated with it, including IT professionals, is this: You are only as valuable as what you do for the company today. Pfeiffer was brilliant leading the Compaq of a year ago. Today he’s unemployed; though his $300 million may cushion the blow. The same applies to you. If your skills are yesterday’s skills, your job is in jeopardy. --Bill Laberis is president of Bill Laberis Associates Inc. (Holliston, Mass.) and former editor-in-chief of Computerworld. Contact him at firstname.lastname@example.org.