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COMPAQ: THERE'S NO END TO ITS DRIVEIt aims to leapfrog the heavyweights to claim new markets
Along the walls of
Pfeiffer is a believer in the power of both. Since 1991, when he took over a company destined for a bleak future, he has exploited one industry trend after another to transform Compaq into an $18 billion supplier of everything from laptops to mainframe-class servers to high-speed networking gear. In nearly every business, Compaq is growing faster than the market and is on a tear to hit sales of $40 billion in 2000, a goal the 55-year-old Pfeiffer set last June. Even a slowing PC market isn't derailing Compaq. The company's fourth-quarter revenues soared 43%, to $5.4 billion, and profits hit $462 million. In 1997, Wall Street expects Compaq will earn $1.7 billion on revenues of $22 billion. Says Credit Suisse First Boston Corp. analyst Charles R. Wolf: ''The $40 billion isn't the big news. It's what the company plans to become--that's the big news.''
Pfeiffer wants Compaq to be the King of Convergence. He's scheming to leapfrog such industry heavyweights as IBM, Hewlett-Packard, and Sony to stake out new markets in the home, the office, and in digital communications. Not content to ride the wave of Microsoft Corp. and Intel Corp. technologies across the computer industry, Pfeiffer wants Compaq to set the pace in everything from digital television to inexpensive home PCs to large phone-network switches. If today's computer giants are reluctant to drive Windows and Intel technology into new uses and markets, Pfeiffer believes Compaq must. ''We've seen the long-term potential,'' he says. ''It's stronger than we had anticipated, much stronger than others have recognized.''
Compaq isn't the first company to try grabbing hold of the steering wheel. The business is littered with the wreckage of failed attempts. In the 1980s, IBM wanted to meld the computer and communications worlds, acquiring switchmaker Rolm just before its business stalled. Last year, AT&T divested its troubled NCR computer operation after years of losses.
TERRITORY. But Compaq already has shown it can venture from its PC roots. On Oct. 29, it launched a new foray into engineering workstations, capturing 1% of the machines sold in the $13 billion business after just eight weeks of sales. Meanwhile, in computer servers, which is at the core of corporate networks and Web sites, Compaq retains a stunning 31% of the market, despite fierce competition from Hewlett-Packard Co. and IBM. And in the brutal PC business, Compaq's fourth-quarter shipments rose 23%, compared with the industry's 16% growth rate.
To keep the growth engine stoked, Pfeiffer is expanding his territory. On Feb. 26, the computer company will release an ultralow-cost, $999 PC designed to attract the 60% of U.S. households without a personal computer. Rivals such as IBM, Hewlett-Packard, and Dell Computer say the move, which cuts the price of an entry-level computer in half, isn't worth the effort. Says James A. Firestone, general manager of IBM's Consumer Div.: ''To get to $1,000, you have to back off cutting-edge technology.'' Although the price of Compaq's Presario 2000 doesn't include a monitor, it will have the latest chip and disk technologies.
The PC for the masses is just one part of a broad consumer push into information appliances. Compaq wants to deliver attachments for the kitchen phone, digital TVs for the living room, and Internet servers that can control your home appliances. In June, the Compaq name will appear on a large-screen PC/TV that will allow couch potatoes to watch a program on, say, Bali, while pulling resort descriptions off the Internet. ''We plan to be the Procter
& Gamble of the digital home,'' says Compaq consumer products chief Michael D. Heil.
To get there, Compaq is again playing the upstart. In December, the company won brawls with TV broadcasters and phone companies over the direction of high-definition TV and data networks. California regulators rejected higher digital line fees after Compaq and others organized opposition. In the HDTV debate, Richard J. Solomon, associate director of Massachusetts Institute of Technology's Research Program on Communications Policy and an early HDTV advocate, says: ''Compaq and Intel are doing what IBM and Apple did 10 years ago. They're offering the leadership that you're not getting from the old-line industries--broadcasting and consumer electronics.''
MEDIA MADNESS. Now, Compaq is assembling a coalition to draft new digital- TV standards. The coalition, says Robert W. Stearns, senior vice-president for technology and corporate development, will design new digital TVs that could get data over the airwaves and play Cable News Network in a window while running a stock trading package. ''We're going to set a pace in the TV industry that resembles the pace we've set in the computer industry,'' says Stearns.
To finance all this, Compaq must become superefficient. It already is developing just-in-time inventory stocking and is building business PCs to fill dealer orders rather than rely on its own forecasts. In the last quarter, such moves shrank inventories to just 30 days, from 69 days a year ago, contributing $1 billion to the $4 billion cash hoard it had at the end of December. By this time next year, Compaq expects to help trim more than a month off of its dealers' inventories by doing more of the customization they now perform.
The potential payoff? Compaq now spends about 7.4 cents of every sales dollar moving components and delivering its products. By December, says Senior Vice-President of Operations Gregory E. Petsch, new supply lines will slice 1.4 cents off of those expenses, which comes out to a potential $310 million payoff if revenues hit analysts' $22 billion sales estimates.
Investors are betting that the company can reach its goals. Compaq's shares, which hit a new 52-week high of 87 7/8 on Feb. 3, are up 16.6% this year, vs. 8.5% for the Standard & Poor's Computer Systems Index. If Pfeiffer pulls off his vision of convergence, Compaq's future is likely to be drawn in the same bold lines as the artwork outside his office.
By Gary McWilliams in Houston
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Updated June 15, 1997 by bwwebmaster
Copyright 1997, by The McGraw-Hill Companies Inc. All rights reserved.
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