Compaq's Unhappy Headhunting Ground
Compaq Computer Corp. isn't exactly running on one engine. Earnings are rising again after a two-year lull, and its strategy of moving beyond personal computers to become a broad-line computer maker is proceeding apace. On Oct. 29, it launched a new line of engineering workstations, expected to be followed next year with fail-safe computers and full-scale corporate networks. So why are so many executives parachuting out of the $14.8 billion Houston company?
Since July, eight vice-presidents have left, including key executives in the server, networking, and workstation businesses. The latest to leave: Networking Products Div. Vice-President Doug Pushard, who led Compaq's drive into networking. Pushard departed on Oct. 14 "to pursue other opportunities," a Compaq spokesman says. The next week, the company's top U.S. sales and marketing executive, Senior Vice-President Ross A. Cooley, defected to a small startup that sells PCs over the Internet.
SNAGS. Some analysts fear the resignations portend strategic turbulence for Compaq. In July, the company launched an incredible nine new divisions, including units to develop internet products, workstations, and communication offerings, as part of its push to reach $40 billion in revenues by 2000. Now, Compaq may be hitting snags juggling so many initiatives at once. Warns Gartner Group Inc. analyst David J. Cappuccio: "They run a danger of stretching themselves too thin."
A certain amount of turmoil would be understandable. Compaq Chief Executive Eckhard Pfeiffer has been recruiting big-company outsiders to head a series of multidivision groups. And as he has brought in managers from Digital Equipment Corp., Unisys Corp., and elsewhere, the Compaq executives who have been passed over have quit. So, too, Compaq's success has made it fertile ground for headhunters. "I was looking for opportunity and change," says Cooley, the newly named chairman and chief executive of pcOrder.com, based in Austin, Tex. "I must have had a million headhunters come at me."
For now, the talent drain shouldn't slow Compaq much. Wall Street projects that strong corporate PC sales will drive up the company's earnings for the quarter ending Dec. 31 by 27% vs. last year's fourth quarter, to $415 million, on revenues that will jump 21%, to $5.6 billion. Pfeiffer says executive turnover won't delay his plans. "We have a level of energy going here that's unprecedented. These division managers are going like gangbusters," he says. To him, the departures reflect a yearning for a slower pace: "At some point, you start asking yourself: How much longer do I do it? Do I still need to do it?"
Still, there are signs of difficulties developing in some of Pfeiffer's new units. For instance, Compaq jumped into networking last fall, when it spent $400 million to acquire NetWorth Inc. in Dallas and Thomas-Conrad Corp. in Austin, Tex. But key product releases have run months behind schedule. And the expected synergies from using PC dealers to sell networks haven't materialized. For instance, researchers from the Dell' Oro Group say Compaq's 4.5% share of work-group network connections is up only one point from what NetWorth had when it was acquired.
SHORT STAY. Just as bad, Compaq's engineering workstation division is off to a leaderless start. Mark A. Canepa, the executive hired on Sept. 25 from Hewlett-Packard Co. to direct its move into the $13 billion workstation market, defected to rival Sun Microsystems Inc. after just three weeks on the job. He decided he didn't want to move to Houston. Compaq went ahead with the rollout of its Professional Workstation in late October despite the loss. Replacements for Canepa and Pushard are still to be appointed.
The biggest defections have been in the "server" computer business, which accounts for some 40% of profits. Since July, the unit's top three sales and marketing execs have followed division Vice-President Gary Stimac out the door. One of them, former North American Marketing Vice-President Michael D. Lambert, joined Dell Computer Corp. in October as head of its server business.
The server business also is under increasing attack. Pfeiffer has moved quickly to name new managers from inside Compaq and from former Digital Equipment and AST Research Inc. ranks. But Compaq's share of shipments is off five points from the 36% level of this time last year, says International Data Corp. Hewlett-Packard, Dell, and others are targeting Compaq.
Whether these challengers will succeed is another matter. Compaq, after all, is a highflier. It's just that keeping all its executives on board is proving difficult.