July 22, 1999 7:05 PM PDT

New CEO says Compaq will push Net agenda

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Insider promoted to CEO at Compaq

July 22, 1999
The reins of power were handed over at Compaq Computer today, but now the real work begins.

In a New York event this afternoon, Compaq chairman Ben Rosen announced that Michael Capellas has been promoted to chief executive, and the two then outlined a list of general goals to be tackled.

Among the highlights: Boost Web sales to 40 percent, eliminate redundant products, and better integrate Internet usage into the company's computer systems. A plan to "rationalize," or restructure, the product line will be revealed on August 15.

"As members of the board, we shall continue to work closely with Michael," Rosen said. He then disbanded the Office of the Chief Executive, which he shared with two others since the ouster of former CEO Eckhard Pfeiffer in April.

Ending an anxious three-month search, Capellas's appointment could be crucial to reviving shareholder confidence and preventing competitors, circling like sharks, from snapping up important accounts. While Compaq has been struggling, rival Hewlett-Packard had also been looking for a chief executive, until naming Carleton Fiorina on Monday.

Compaq's problems are certainly big. Next Wednesday, the company is expected on to announce a loss of 11 cents per share, according to a consensus by First Call. Compaq also lost five top managers following the Pfeiffer's ouster and needs to fill a number of high-level positions.

For obvious reasons the board wanted "someone who could start executing on day 1 with no learning curve," said Rosen. "And today is day 1 plus 60, because he's been doing it for two months now."

Capellas had been acting chief operating officer, overseeing a major organizational change that broke up the company into three groups around consumer products, commercial PC products, the "enterprise" (or corporate) products and services.

Upon taking the stage, Capellas punched out a straightforward agenda for Compaq: Intertwine the Internet into all product and solution areas. The forty-four-year-old laid out a vision of a new era, a fundamental change where e-commerce and e-business are dominant forces.

"What you see is a shift in information technology, away from a house, away from a glass house, where you could look at your business as an enterprise and know what IT [information technology] is going to do to you," Capellas said.

Capellas also exhibited a candor absent from his predecessor, Pfeiffer. While touting Compaq's technology and engineering, he admitted, "At times we haven't always taken that to market and seen the most success in the market, but we have the technological lead."

The new CEO distanced himself from past management's market-share-grabbing strategy, which landed Compaq into trouble. In February 1998, Compaq announced its dealers had too much inventory. Just over a year later, Pfeiffer and chief financial officer Earl Mason cut earning expectations in half in a surprise announcement many say was mishandled.

"We very clearly have to focus on profitable growth," Capellas said. "And I want to focus on the words 'profitable growth.' That does not mean growth at all costs. That does not mean hitting revenue targets for the sake of hitting revenue targets. It means profitable growth that ensures we have success to the customer, but we are also operating in a space where we can be competitive."

Capellas also tackled the tough issue of direct sales vs. more traditional sales through dealers. Compaq sells 15 percent direct today, with a goal of 25 percent by the end of the year and 40 percent next year. The PC manufacturer plans to take all of its largest customers direct, utilizing the Web and call centers for consumers and depending more on dealers in the small- and medium-sized businesses.

During a question-and-answer period, one analyst pressed Capellas on what assurances he had been given by Rosen, in light of the ouster of his two predecessors, Pfeiffer and Rod Canion. Capellas shot back: "The reason I believe we will get it right is because we have a great portfolio of products, because I've been in the company, I've seen the potential of the company, and I believe in what we are doing. I wouldn't go into this job if I felt I needed assurances."

Rumors circulated for weeks about who might be Compaq's new chief executive. At one point Gregory Brenneman, president of Continental Airlines, and more recently Peter Hellman, a former TRW executive, were rumored to be leading candidates.

Rosen dispelled these suggestions. "I want to emphasize that there was only one choice. This is the only offer that we made."

Capellas speedily rose to the top, having joined the company as chief information officer in August 1998, after serving as senior vice president and general manager of Oracle's global energy business. Previously, he spent 18 years with oil company Schlumberger in a variety of management positions, including heading worldwide information services.

On June 2, the board appointed Capellas COO, which, under the temporary realignment, was the most powerful position below Rosen's triumvirate. The promotion came at the same time that John Rose, senior vice president of Compaq's enterprise group and a long-time associate of Pfeiffer, left.

Capellas's status as a recent addition to the PC maker likely fueled his rise. Rosen and the board have cleared out most of Pfeiffer's close associates.

 

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