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Compaq At The `Crossroads'

The computer maker is retooling again-and the boss is pushing hard for profits

It was a close one. Faced with a sudden and totally unanticipated slowdown in sales, on Mar. 1, Compaq Computer Corp. Chief Executive Eckhard Pfeiffer was forced to warn analysts that the computer maker was unlikely to hit expected revenue and earnings for the quarter ending Mar. 31. The news sent Compaq's stock plummeting 18%, to 41 3/4, in one day. After the announcement, Pfeiffer jumped into high gear. He ordered incentives for dealers and cut prices 20% to lift demand. It worked: Revenues for the March quarter jumped 42%. The stock quickly recovered most of its loss.

Pulling off such a save would be cause for celebration at most companies. But inside the $14.8 billion PC giant, it was soul-searching time. The cost of hitting Pfeiffer's growth target was a four-point drop in gross profit margin to 20.3%, its lowest ever and far short of the company's 23% to 24% goal. That exposed a troubling truth: For more than two years, Compaq has been running twice as fast only to stay in place--shipments and revenue have been hitting new highs, making it the world's top PC maker. But profits have barely budged.