Shock resignations at Compaq -- Pfeiffer, CFO quit

Compaq Computer announced yesterday the surprise resignations of the company's CEO and president Eckhard Pfeiffer and Earl Mason, senior vice president and chief financial officer. The news comes hard on the heels of the US hardware vendor issuing a profit warning for its first fiscal quarter, ended March 31, 1999.

"It's certainly unexpected," said Dane Anderson, director of computing systems research at market research company IDC Asia-Pacific, based in Singapore. "I never expected Pfeiffer to leave."

Anderson added that although Compaq had suggested that its recent earnings warning was related to industry-wide problems such as increased price competition and a drop-off in demand for PCs, "this suggests that Compaq's problems run a lot deeper."

Pfeiffer's departure from Compaq also places a question mark over how successful the company has been in its integration of Digital Equipment, Anderson added. "It's interesting that when Compaq did the acquisition of Digital, people said, 'If anyone can do it, it'll be Eckhard Pfeiffer,'" Anderson said. "(His departure) brings Compaq's ability to integrate Digital into question along with the company's whole strategy of acquiring Digital and Tandem and whether it can make it work or not."

In the interim period before a new CEO is chosen, Compaq's day-to-day operations will be run by a newly formed Office of the Chief Executive, the company said in a statement released yesterday. The Office of the Chief Executive will consist of company chairman Ben Rosen and directors and vice chairmen Frank P. Doyle and Robert Ted Enloe, Compaq said. Rosen will take on the additional responsibility of acting CEO.

Ben Wells, the company's treasurer becomes acting CFO. Mason is to become a CEO of a company in an unrelated industry, according to the Compaq statement. No information was given concerning Pfeiffer's next potential industry position.

IDC's Anderson speculated that Compaq will probably look for an outsider to replace Pfeiffer. "They might take the course IBM did with (Lou) Gerstner," he said.

Pfeiffer joined Compaq in 1983 and became company CEO and president in October 1991.

Some of company chairman Rosen's comments in the Compaq statement could be read as indicating that the vendor's troubles run deep, particularly his reference for the need for "organisational flexibility... at Internet speed" and for the company to "remain intimately connected to our markets and customers." "We had seen the board getting a bit restless with some of Compaq's decisions," Anderson at IDC said.

Rosen is one of Compaq's founders. He is well known for his work in the venture capitalist (VC) market. Rosen is a founding partner of Sevin Rosen Funds, a multi-hundred million dollar VC company which has provided initial financial backing for the likes of Compaq, Lotus Development and Cypress Semiconductor.

Compaq's profit warning, issued earlier this month, estimated that company revenue for the first fiscal quarter of this year will be $US9.4 billion or earnings per share of 15 cents, well below Wall Street analysts' predications of 31 cents per share. Compaq is due to report its first quarter results for the period ended March 31, 1999, on April 21.

Pfeiffer said a few days after the profit warning that a general industry slowdown and reduced pricing were the likely culprits responsible for Compaq's expected poor performance.

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