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Compaq's CEO Resigns
tomreagan writes
"Unbelievable - Compaq CEO Eckhard Pfeiffer just
resigned out of the blue on Sunday and took the CFO with him.
There's a story at the New
York Times (CT:Requires free login) and the
official press release can be be found
here. "
This is to all those computer companies out there that are wanting to be "the next Compaq": Don't. If you want to be "the next" anything, be "the next Dell".
Compaq's problems stemmed from the same basic flaw as Apple's problems: they engineered too much of their own hardware. That is acceptable for high-volume low-cost widgets like the $500 eMachines units, where scraping 15 cents off the cost can be millions in extra profits, but it is not acceptable in the $1K-$2K market. In that market, every Joe Consultant in Hoboken is building computers out of "white boxes" in their back room, and according to at least one survey that I saw, as much as 50% of the personal computers sold may be going through that channel.
Compaq's engineers have always laughed at Dell. They have sneered at Dell's "white boxes" (Dell does very little of their own design work, mostly re-packaging generic commodity components). Dell laughs all the way to the bank.
Apple is doomed, in the end, because they cannot compete on a cost-basis with equivalent Intel boxes. One company engineering all of their own hardware cannot compete with companies that outsource commodity hardware from specialists in that particular type of hardware. Apple cannot build a motherboard for as cheap as ABIT or some other company that specializes only in motherboards, for example.
Lessons learned:
Engineering your own hardware works only for ultra-low-cost-high-volume work, or for stuff there isn't enough volume for "generic" hardware. In the vast middle of the road, using commodity components gets you a better computer for a lower cost.
Why this is important to us:
Microsoft is like the Apple of the operating systems world. They engineer all of their own components in-house so that they can have "total control".
Linux, on the other hand, is the "white box" operating system of the new era. Linux vendors collect commodity software components from various locations, integrate them, and release the result as a single product. Much like a "white box" manufacturer looks through the available video cards to decide which one to put into his computer, the "white box" Linux vendor looks through the available 'lpd' daemons to decide which one to put in his distribution, for example. Then, like the 'white box' computer manufacturers, the 'white box' Linux vendor then differentiates himself from his competitors through a) the choice of components that he uses (e.g., glibc? libc5?), b), the kind of service he offers, c) "widget frosting", such as a nice installer, better config tool, or whatever, d) advertising and image. Part of which may be releasing software created internally as Open Source... for example, Red Hat gained much of their mind share in the early days by releasing things like 'rpm' as Open Source.
The value of this "white box" paradigm for creating operating systems is that it inevitably adds to the supply of commodity components for building operating systems, and thus will inevitably result in better operating systems components, much like having multiple video card vendors has resulted in better video cards. Bill Gates views the GNOME vs KDE thing as a weakness. I view it as a strength, much like nVidia vs. 3dfx. Just as having two 3d video card giants helps drive innovation in the 3d video card industry, having two desktop environment giants will inevitably help drive innovation in the desktop environment industry... and thus add to the supply of commodity components that we put together on a CD and call "Linux" (GNU/Linux, for you purists out there!).
-- Eric
Send mail here if you want to reach me.
I'm not surprised at this resignation: considering the profits warning, the shares tradind at half their january maximum, and several class action lawsuits against CPQ, i rather think this was to be expected.
Shareholders don't take it kindly when the share price halves.
The more interesting implication is that the same can happen to one hugely over-valuated software company, if there is even a little glitch in profits... Could we see resignations then? Could that glitch be a consequence of Linux?
Wishfull thinking...
However, the DOJ managed to dig up an e-mail from Bill Gates to Rosen kindly thanking him for the great effort he had made in coming to Redmond repeatedly on behalf of the trial.
I have never been interested in Compaq and know next to nothing about Pfeiffer. But right now they have a CEO whose allegiance to Microsoft is sufficiently strong that he is willing to lie for them even when under oath. That can't be good.
-cjr
Alpha is successful product line, representing the absolute bleeding edge in processor technology. There are quite a few industries out there which require that kind of flexibility, and Alpha has always been quite price competitive since Digital always sold individual chips to OEMs, and the machines used so much standard Intel hardware.
The Digital arm of Compaq has a hell of a commitment to Alpha, and a lot of R&D invested in the next gen 21364. Alpha is already supported by Linux and WinNT, and if Merced is a flop is well poised to become the 64bit successor to IA32, as companies demand 64bit power that works easily with their existing applications.
I think it'll be around for a long time.
According to the Bill Gates Net Worth Page Bill Gates currently owns 18.5% of Microsoft. When Microsoft stock first went public, he owned 49.8%.
Either way, I doubt that he could ever be forced out of the CEO job, unless things were really bad.
Mark Fassler
fassler at frii dot com
In the previous two decades, the big iron vendors all bought each other out while the minicomputer vendors (like DEC and Tandem) nimbly skirted them and thrived. Back then those smaller companies were the mammals - staying out of the way while the poor, doomed dinosaurs mated above them.
Today, the DECs and Tandems have become the dinosaurs. And Compaq, despite their servers (I love 'em), has started to turn into one, too.
The fundamental problem this time that differentiates a Compaq from an Apple in the turnaround effort is that Apple has gotten where they are by being different - an alternative to the prevailing Wintel near-monopoly. Compaq, despite owning Alpha, VMS, and their belated embrace of Linux, is just a Wintel vendor at heart. And Wintel companies are a dime a dozen.
For Apple, thinking different means something. For Compaq, it just means they're Dell with a higher cost structure, more outside salesmen, and Alpha chips. Whoopee.
I'll buy some shares in case they turn around (what the hell - they're cheap now), but I'm not going to bet the house on them.
-- Josh Turiel
"2. Do not eat iPod Shuffle."
Once their quarterly report comes out, and the reprecussions are set in (About a week after their quarterly report), I'm buying as much compaq as I can. The fact of the matter is, the company is not going anywhere, they own what may be the world's best search engine (as long as they dont implement that damn pay-for-search-results), and have a historic financial track record. I think Compaq is just having some financial troubles, but soon it will be back on track. I said the same thing about Apple two years ago. Compaq is having a similar experience.
And no, I don't work for Compaq. But I am looking forward to being a shareholder soon.
After reading all the replies, I'm disgusted :)
Someone replied: "Compaq should be broken up." Good grief! Compaq isnt doing any illegal business practices, nor do they have a monopoly.
50% of the posts consist of "Compaq Sucks, or bla bla". Get real. How many proliants are installed that have failed? I have a P-90 (Proliant) machine thats been on and running for years without a problem. And what brand are you using? The I-pieced-it-from-parts-donated-to-me brand?
The CEO and some crew resigned. Its not the end of Compaq. Its not like the whole employee based walked out, its the upper management.
I think a lot of you are quick to criticize if it isnt VA Research/Red Hat or some other "linux-friendly" computer or software company.
God. 10 years ago it was the Macintosh Religious Group - the people that preached that Macintosh was just. better.
Now its the Linux is just. better.
Kudos for believing in something, I guess. Non-kudos for not keeping an open mind.
:)
Most companies follow almost the same curve of growth and decline, the differences between them being how long the cycle takes, how high they get, and how many down cycles they manage to catch soon enough to reinvent themselves before going out of business. DEC had a slow climb and a pretty slow fall from its peak in the minicomputer years of the early to mid '80's (this is a mindshare thing, not directly related to sales or profits). Compaq had a pretty steep climb to prominence through the 80's, but when I heard Compaq was buying DEC (and Pfeiffer's pronouncements about building a $50 billion company) I knew it was not a good sign for either company. Some companies manage to reinvent themselves - IBM, Microsoft, and Apple have done it at least once in the last few years. But I think Compaq+DEC has probably left it too late this time. We'll see how it all turns out.
Energy: time to change the picture.