Compaq Computer CEO Michael Capellas praises employees for moving the PC maker toward a turnaround in his first year at the helm, but he also calls for
an increased focus on the meat and potatoes of delivering products and
improving customer service, according to an internal memo obtained by CNET
Capellas delivered the memo to employees last week via email. Although much of the
memo's content was positive, Capellas wrote that Compaq still faces some tough
"We need to accelerate our progress in building a world-class
customer delivery model, or supply chain," he wrote. "This is absolutely
essential if we are to get to the next level of growth."
Capellas took over as Compaq's chief executive in July 1999, following the
unexpected April ouster of
then-CEO Eckhard Pfeiffer. The Compaq insider and unexpected pick stepped
into the tough role of revitalizing a company in decline.
A year later,
with the commercial PC division profitable again and the company's revenue on a rebound,
Compaq is poised for a strong second half of 2000.
In a conference call with
financial analysts last week, Capellas said the company forecasts third-quarter revenue of $10.8 billion, or 17 percent more than a year earlier.
Customer satisfaction remains weak--an area, Capellas wrote in the memo, that the company will try to shore up with better marketing and customer services.
He also noted that Compaq's commercial and consumer divisions
will announce new Internet appliances and devices in mid-August.
"If I had to pick one area where we executed even beyond my
highest expectations during the past year," he wrote, "it would be innovation. We said
we were going to accelerate innovation. We said we were going to deliver
'cool stuff.' But we've done more than that. We've demonstrated that
delivering better technology matters."
Compaq also needs a further shakedown in its complicated manufacturing and
distribution operation, Capellas wrote, by delivering "predictable cycle
times," increasing "visibility to customers," and achieving "linearity,
meaning a more even distribution of orders and fulfillment throughout the
quarter rather than a mad dash in the last two weeks."
Capellas, in the memo, said employees will reap the benefits of some of
that growth, even if it is less than what might have been hoped for.
"We had an operating profit of $1 billion for the first six months of 2000, but our customer satisfaction rating remained a 'C,'" he wrote. "As a result, the payout will be 2.4 percent of employee eligible earnings for the first half of 2000." The profit-sharing payout will appear in the employees' Aug. 11 paychecks.
Capellas noted that customer satisfaction, which rated a "B" in seven
key areas, was a problem overall, with Compaq lagging behind in three other areas:
"delivering solutions that are ready for installation; making sure our
solutions are available when promised; being a more customer-focused company."
The big news--the commercial computing group's return to profitability after a year of
losses--was in part due to "a relentless focus on innovative products with
simpler designs and higher margins," Capellas wrote. During the second quarter,
Compaq shipped its 100,000th iPaq Internet PC but struggled to produce
enough iPaq Pocket PC handhelds.
"We have increased production of the
extremely popular iPaq Pocket PC to 50,000 units per month to meet strong
customer demand," the CEO wrote.
Capellas also touted the consumer group, with revenue growth of 32 percent year-over-year and 94 percent internationally. He also highlighted
new back-to-school models and noted that on Aug. 15, the group "would
introduce some seriously cool products that will further expand our
presence in the market for Internet devices and appliances."
Other areas did not perform as well as expected, and Capellas' memo glossed over their weaknesses. During the second quarter, Compaq started shipping its long-delayed AlphaServer GS, or Wildfire, series. Although at the product's launch in mid-May Compaq said it had advance orders for more than 200 Wildfire
servers, Capellas wrote that "we shipped more than 50 of the servers during Q2."
During last week's second-quarter earnings announcement, in which Compaq posted
$10.1 billion in revenue and $387 in profits, Capellas said there were
about 200 AlphaServer GS back orders, indicating only a small number of new
orders since the product's launch. Compaq projects $1 billion in revenue
from the product line this year.
In the memo, Capellas recognized that effective marketing is a crucial area sorely lacking
and touted the hiring of new
executives and an outside PR agency. The company's marketing strategy has been
somewhat disjointed since the departure last year of longtime PR
agency Shandwick International.
"Now we are focused on an aggressive new brand campaign that will more
clearly communicate who we are and how we are helping customers use
technology to accomplish more in their work and personal lives," Capellas
wrote. "You will hear more about this in the coming weeks."
Capellas also wrote that Compaq's "goal for the second half of the year is to
deliver strong, double-digit growth with continued improvement in
profitability...The time is now."