Compaq's chief executive, Eckhard Pfeiffer, told
the world he would outdo himself.
After building his company into the world's largest maker of
personal computers, Pfeiffer aimed to stretch Compaq well beyond
its roots, creating a technology conglomerate that would sell a
spectrum of machines and high-tech services to rival the likes of
But Pfeiffer fell short of this goal and was ousted this weekend
by Compaq's board of directors.
While Compaq Computer Corp. remains a formidable competitor, it
choked on other manufacturers it acquired, didn't foresee the
importance of Internet sales and stumbled while trying to emulate
the more efficient sales model of arch rival Dell Computer Corp.
First-quarter revenue is expected to total $9.4 billion, well short
of expectations, raising doubts that Compaq will achieve Pfeiffer's
annual sales goal of $50 billion by the year 2000.
Pfeiffer, some say, left his company too spread out to
effectively defend the cheap-PC strategy he pioneered in the early
"It's all the classic signs of a Greek tragedy," said Roger
Kay, an industry analyst with the International Data Corp. research
and consulting company. "They were the creators of their own
Compaq chairman Ben Rosen, who is acting as chief executive
until a replacement is found, defended Pfeiffer's vision, but said
the company will try to improve its execution.
"Compaq's strategy is fundamentally sound," Rosen told
analysts in a conference call Monday. But, he added, "we plan to
speed up decision-making. We plan to anticipate and get ahead of
Pfeiffer, who took over as CEO in October 1991, beat by two
years his initial goal of building the No. 1 PC maker by 1996. He
passed IBM and Apple by peddling affordable machines using popular
Microsoft Windows software and Intel chips, establishing the
dominance of so-called "Wintel" computers.
But competing mainly on price made it tougher for Compaq to earn
money. A crop of upstart competitors such as eMachines is pushing
prices down so low that it has forced the personal computer
industry to rewrite its business model. As of January, sub-$600
computers accounted for nearly one-in-five desktop PCs sold in U.S.
retail channels, according to high-tech publisher Ziff Davis.
Tumbling prices of PCs haven't been Compaq's only problem. While
prices of PCs sold to businesses dropped by 16 percent in the three
months ended February, prices of more profitable business computers
known as servers, which help run networks of desktops, plunged by
31 percent, according to Ziff Davis.
While other companies such as IBM and Hewlett-Packard also
suffered, they sell a wider range of products than Compaq, which
helped mitigate the damage.
Pfeiffer began stretching in new directions. He introduced new
machines that combined the functions of PCs and TVs, hoping to
create a new entertainment category.
His success in pushing Compaq to the head of the PC pack gave
him the clout to pull off two major acquisitions these past two
years. The idea behind buying Digital Equipment Corp. and Tandem
Computers Inc., makers of powerful business systems, was to help
Compaq offer customers a range of computers. Compaq's sales
channels, went the thinking, could peddle Digital computers, and
But PC-TVs never took off. And analysts said Pfeiffer never
fully exploited the acquisitions.
Unit sales of Digital's Alpha computers, which are targeted to
large corporations, dropped 12 percent in the six months since
Compaq completed the Digital acquisition last summer, according to
the researcher International Data Corp. Revenues from Alpha
machines slipped 5 percent.
One problem has been a lack of new Alpha models, though Compaq
recently introduced new products, said International Data analyst
"A lot of people hoped Compaq would bring something of volume
strategy to Digitals' Alpha line and other products," he said. "A
lot of that hasn't happened."
Compaq was forced to backtrack from a recent attempt to compete
more effectively against Dell, the world's largest seller of
computers directly to customers.
Unlike Dell, Compaq sells most of its computers through
distributors, who get a cut of the profits. By cutting out these
middlemen, Dell bolsters its profits and nurtures long-lasting
relationships with customers.
Last fall, Compaq began selling a new line of computers on its
Web site directly to small businesses.
Jump-starting Internet sales could have helped Compaq catch up
to Dell, which sold $14 million worth of computers online each day
by the end of the first quarter.
But Compaq's Web sales fell short, and the company was forced to
retreat from its direct-only strategy. This year, it began offering
the same machines through distributors.
Compaq isn't the only company having difficulty trying to sell
both ways. IBM and Hewlett-Packard also have had mixed success.