At least one analyst recently has said that executives of Compaq Computer Corp. (NYSE: CPQ) must be on crack, but that's just a silly thought.
If they're ingesting anything, it's probably more like peyote, acid or another hallucinogenic. There's no other way to explain the the Houston-based PC maker's delusions.
| Compaq: Ready to rise again? |
Today's restructuring announcements can only leave investors wondering where this leaner, faster Compaq is supposed to come from. The company believes dividing itself into three business units will help it deliver products to market faster, because each group will be focused solely on its own field. Executives during today's press conference touted it not only as a panacea, but also as a lure for a top notch chief executive officer.
"The steps that we are taking are steps that will make the company a much stronger company, that will put it in a position of strength for the new CEO," said Ben Rosen, acting CEO and the man who, as chairman, let the old CEO turn Compaq into the directionless wanderer it now is.
Certain aspects of Compaq will stay the same, namely, managers for the company's large accounts will stay in place. But Compaq's "Office of the CEO" says the new approach -- which would create three product development teams and three marketing departments, among other things -- shortens time to market. (Hewlett-Packard Co. (NYSE: HWP), with its semi-autonomous units, has already been operating that way for decades; obviously, the approach has its problems, as HP's own pending reorganization indicates).
An overhaul designed to save $2 billion makes for eye-grabbing headlines, but it doesn't address the trio of issues undermining Compaq in recent quarters: direct sales; cheap PCs; the impact of the Internet on corporations.
Compaq hopes to get 25 percent of its PC revenue from direct sales by the fourth quarter, meaning three-quarters of the company's sales will still come from the comparatively inefficient retail channel. Unfortunately, unless Compaq fires its entire U.S. workforce and shifts everything to low cost Asian manufacturing, the company will never match the cost structure of an eMachines, which is rapidly gobbling up the retail market.
It might help if Compaq could make up some ground on the high end, but that's a niche dominated by the pure build-to-order players. Let's face it -- Compaq PCs aren't exactly blazing in most of the benchmark tests you see floating around ZDNet and other sites, which means their appeal to high-end users will be minimal at best.
In the corporate space, Compaq's strategy seems AWOL as Dell, IBM, Sun, even HP charge more aggressively. Supposedly, today's announcement heralds the birth of a newly focused enterprise unit for Compaq; the same thing was touted a year ago when Digital was acquired. It didn't happen then, and until Compaq gets a permanent CEO, there's no reason to believe it's going to happen now.
Even if their business strategy remains incoherent, Rosen and his managers should at least have immediate answers for Compaq's operational problems. The $2 billion plan sounds good, but there's no meat to it so far. Executives in today's press conference said they've neither finalized targeted areas or figures for job cuts, nor determined the size of the actual third quarter charge.
On the product side, despite expectations from analysts such as US Bancorp Piper Jaffray's Ashok Kumar, Compaq has no plans for inventory writeoffs. Compaq has four weeks of products sitting on retailers' shelves and probably a few weeks of internal stock on top of that, yet the company insists this is fine.
Maybe that was acceptable a few years ago, but not now, not when Dell operates with a six to eight day turnover on inventory, and Apple runs on a two-day rotation.
It's almost too easy to criticize Compaq for being an aimless, bloated pig of a PC company. Unfortunately, today's plan does little to assure investors that the pig can fly.
Yeah, I'm sure he just "retired" like that without any kind parting words. Would it kill companies to be honest, and say something like, "The board asked Mr. John Doe to leave because it wanted to go in a different direction than Mr. Doe wanted." Yeah, it's still vague, but at least it doesn't hide anything either.
The overall technology market was in positive territory at mid-afternoon. With two hours left in regular trading, the Nasdaq Composite Index had gained 12.96 to 2530.79, the Dow Jones Industrial was up 7.29 to 10792.24, and the S&P 500 had risen 4.58 to 1334.99. 22GO>