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Integration first up, Compaq's Rosen says

Getting all of its parts to work together will be one of the first jobs in the revitalization of the world's largest PC maker, chairman Ben Rosen says.

Getting all of its parts to work together will be one of the first jobs in the revitalization of Compaq, chairman Ben Rosen said today.

Compaq possesses most of the elements it needs to become a dominant force in Internet computing, Rosen said in an interview with CNET News.Com, but lack of coordination has prevented the Houston-based company from translating sales of consumer Internet PCs, for example, into gains for its AltaVista search engine or services division, or vice versa. (See related story)

Benjamin Rosen The computing giant yesterday plunged into a major restructuring with the forced resignation of CEO Eckhard Pfeiffer. While the resignation took most by surprise, Rosen admitted that Compaq had been seriously looking at changes in upper management for a while.

"Management is one of the things we evaluate on an ongoing basis, but it has been in the past few months that we have been examining management more seriously. In the last month, we have been moving toward a decision," he said. "We've gone from a period that was very difficult in the past week," he added.

Compaq's board of directors formed a three-member office of the chief executive to oversee daily operations, comprising Rosen and vice chairmen Frank Doyle and Robert Ted Enloe. (See related story)

"We have a wealth of assets. We have one of the broadest product portfolios out there," Rosen said. "We have a large share of the Web services market. We have the AltaVista search engine, which is one of the most popular search engines on the Web. We have the largest consumer Internet computer operation in the world."

Nonetheless, the parts don't form a whole. "We haven't done as much as we could have in putting all of the elements together. It takes a while to get the synergies going," he said.

Rosen declined to describe how the company will go about integrating its various units, but promised that Compaq will act in a more decisive manner in the past.

"Some of the things we can improve on are improving our decision-making speed," he said.

How restructuring and implementing closer coordination among divisions will play out looms as one of the biggest issues for Compaq. For months, analysts and others have been raising questions about its overall vision of the future.

For example, Compaq has been trying to sell computers directly and through its dealers, an approach that sows confusion while adding too much cost to the bottom line, according to many. At the same time, it has made Internet acquisitions, such as the purchase of, which have yet to translate into viable strategies.

One change that will occur is that Compaq will seek out ways to develop recurring revenue streams from customers, Rosen said, as other computer vendors have done. To some degree, Compaq has already started down this path with recently released service offerings for small businesses.

But major structural changes are not necessarily in the offing. Rosen nixed the idea, for instance, that Compaq will create a separate company out of the services division it acquired from Digital. "There are no plans to create any other companies than AltaVista," he said. Earlier this year, Compaq spun off AltaVista into a separate subsidiary. An IPO is slated for later this year.

Nor does Rosen expect to see any change in the market's demand for ever-lower PC prices. In fact, he proudly stated that Compaq has been the leader in the PC price war, and has managed to make a profit.

"Our consumer PC business is actually a good business. We have been bringing the price curve down," he said. "Packard Bell lost close to a billion dollars. We have made money even as prices continued to decline."

Compaq will not likely change its distribution strategy from the rough outlines in place now, Rosen said. In other words, Compaq will continue to sell through dealers as well as its Web site, a strategy that has been criticized for alienating the "channel," the network of computer resellers that plays a large role in business sales.

As for replacing Pfeiffer, there's no rush to find another chief executive, Rosen said. "We're under no pressure. We want to find someone who can manage a $40 billion company with relatively complex operations worldwide," he said.

Analysts have generally applauded the ouster of Pfeiffer, who wore out his welcome on Wall Street with the company's latest earnings warning, exhausting his credibility.

But the honeymoon could be short-lived. Rosen and the rest of the Compaq team will have to clarify their goals in the near future, analysts said.

At present, more successful computing companies such as Sun Microsystems or EMC are fairly specialized, according to Daniel Kunstler, PC analyst for J.P. Morgan Securities.

By contrast, Compaq's goals seem to remain fairly nebulous, he said. The company is both pursuing a strategy of promoting Windows NT, for instance, as well as platforms based around its own Alpha and Unix technology. And the quandry of whether to evolve toward direct sales has yet to be resolved.

"From an investor standpoint, people will be more favorably disposed to a change in management. You are willing to give the company a little more benefit of the doubt than they were getting yesterday," he said, "but management was not the only issue."