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2HRS2GO: Tips for Compaq&#039s new CEO

Michael Capellas doesn't need a columnist's advice on how to do his job as the new CEO of Compaq Computer Corp. (NYSE: CPQ), but that doesn't mean he won't get it.

Some folks might be disappointed that Compaq didn't hire an outsider to replace Eckhard Pfeiffer, but Capellas isn't far from it, having been with the company for less than a year. On the surface, he has traits investors want to see; he's a relatively fresh face, but at the same time familiar with the organization, and has a background in information technology.

Nonetheless, the stock is retreating today, despite an upgrade from Morgan Stanley Dean Witter. Investors are right to be skeptical.



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Capellas has no CEO experience; until his appointment as Compaq's temporary chief operating officer in June, he hadn't even overseen a major business unit at an information technology company, unless you count Oracle's global energy division as one. As chief information officer for Compaq, Capellas was in charge of supporting and intergrating technology from Digital and Tandem -- not an experience to boast about, given the lack of results from those acquisitions so far.

No doubt Capellas is intelligent, but so was Pfeiffer. Capellas comes from a nuts and bolts background: CIO, CFO, controller, treasurer, supply chain manager. At one point, he was operations manager for Fairchild Semiconductor, back when it was owned by Schlumberger Ltd., an oil services company that employed Capellas for 18 years.

Sounds like a fine resume for someone overseeing day-to-day operations. But in today's technology world, most successful CEOs are outstanding marketeers: Lou Gerstner, Bill Gates, Michael Dell, Scott McNealy, Larry Ellison (living proof you don't need to be a crackerjack operations manager to lead a successful company). Compare those high-tech honchos with two prominent CEOs with backgrounds in operations or IT management: Jim Barksdale, whose tenure as Netscape's commander will be remembered as the time when Netscape lost its early position as an Internet leader; and Gil Amelio, whose failure to turn Apple around quickly gave Steve Jobs the chance to wrest control of the company.

So Capellas has a lot to prove to the market, especially with the morass currently engulfing Compaq. Here's some unsolicited, unwanted, obvious, naive and probably incorrect advice for Compaq's new boss:

Stick to one sales venue for PCs. Compaq wants both direct sales and the retail channel; unfortunately, it's suffering the flaws of both while receiving the full benefits of neither. Maybe Steve Jobs can get away with the dual sales approach, but Compaq doesn't command the brand name cachet or user loyalty of Apple.

Find a memorable marketing theme. IBM has eBusiness. Dell lets you Be Direct. Apple tells you to Think Different. Microsoft asks Where Do You Want To Go? Sun Puts The Dot In Dot-Com. They're just platitudes -- to cite Steve Ballmer's description of Microsoft's former "vision" of a computer on every desktop -- but they plant recognition and awareness. Compaq has niche brands like NonStop and ActiveAnswers, but no overarching slogan for the whole company. Whatever throwaway phrase Compaq adopts (Suggestion: It's a Compaq World After All, sung to the Disney tune) should be promoted endlessly. IBM has used variations on the same slogan for years, because Big Blue understands that a marketing campaign goes on forever.

Be visible. While we're on the topic of marketing, remember that great companies are always identified with strong personalities. A CEO must be the most effective salesman of the company. Give tons of speeches, get on TV a lot, and be quotable. Being accessible to the press helps, but that's not a requirement, as Gerstner and Gates can testify.

Find a technology differentiator. Compaq needs to stand out as a champion of something and Alpha chips aren't it. Linux might be just the thing here -- it has grassroots hype driving adoption, the product is getting better, and it's free, eliminating hassle about licenses. If Compaq can establish itself as the hardware provider and implementer of choice for Linux, it'll lay claim to currently unoccupied and potentially lucrative ground. And as Dell is proving with its quiet offering of pre-installed Linux, it doesn't mean giving up Windows NT.

Build a better product. Having been a CIO or chief technology officer for much of his career, Capellas knows quality goes a long way toward securing sales, especially among corporate clients. But Compaq PCs lag the competition in speed benchmarks, configurability and reputation of reliability. Compaq's servers aren't as robust as Sun's or IBM's.

Don't give away the low end market. Capellas is saddled with large mass production facilities. If nothing else, he should be able to wring massive economies of scale out of that to crush eMachines, Microworkz and the rest of the cheap competition.

Get a new board of directors. Maybe that's beyond Capellas' scope. Still, Steve Jobs had the right idea when he cleared out Apple's overseers before assuming the iCEO job. A chief executive should be able to operate without looking over his shoulder, unless the directors are fast, nimble types. Compaq's board includes veterans of Bellcore, Bell Atlantic, General Electric, Enron, Paramount and Fox broadcasting, Balquita Partners (a real estate and securities investment group), and Brunswick (perhaps best known for its bowling business). That's a great board -- for the 1980s.

Capellas gets not a baptism of fire, but a full-blown inferno with Compaq. Good luck finding an extinguisher.

Other issues:

  • The 3DO Co.
  • (Nasdaq: THDO) A fiscal first quarter net loss of $6.8 million on revenue of $13.1 million wasn't enough to scare off buyers of the game software vendor's secondary stock offering, which priced at 5 7/16 and totaled 7.9 million shares. It probably helps that the stock price already factored in the first quarter deficit when shares sold off Monday on 3DO's preannouncement of results. Even more helpful is CEO William M. Hawkins buying 1.4 million shares himself in an admirable show of confidence.

    Still, a 1-point rise today for something that closed at 5 9/16 yesterday is impressive, especially considering 3DO isn't some budding Internet investment, but a veteran organization with a troubled past, although the company seems to be recovering. Word on the Street reports demand for more than twice the number of shares available in the offering.

  • Avid Technology Inc.
  • (Nasdaq: AVID) Will things ever get better ever for this maker of digital media systems? The company reported another disappointing quarter yesterday, and Morgan Stanley Dean Witter responded today by downgraded the stock to "neutral" from an "outperform" rating. On the positive side, Avid says it's pleased with demand for its high-end finishing systems. The company also hopes to jumpstart sales of Media Composer, now that the Macintosh community knows the product is going to hang around.

    The overall stock market went firmly negative in the afternoon after an up-and-down morning. With slightly more than two hours left in this week's regular trading, the Nasdaq Composite Index was down 13.78 to 2670.66, the S&P 500 lower 6.81 to 1354.16, and the Dow Jones Industrial Average falling 67.44 to 10901.78. 22GO>