That’s a serious indictment of one of the firms that sparked the PC boom of the last decade. Compaq was started in 1981 by three former Texas Instruments employees who sketched a plan on a restaurant napkin for a clone of the first IBM personal computer. Rosen, a Wall Street analyst turned venture capitalist, invested $2.5 million and became chairman. When the company slumped 10 years later, he ousted the founders and promoted Pfeiffer, who placed the popular Presario line of computers in millions of homes and turned Compaq into a $31-billion-a-year powerhouse. But when quarterly earnings fell well short of Wall Street’s expectations, Rosen reasserted his control. The company’s performance, he said in a public statement, was “disappointing and unacceptable.”
He didn’t get more specific, but analysts say Compaq is getting buffeted on both ends of its business. In the PC market, profits are withering as the cost of many desktop systems have fallen below $1,000. Rivals Dell and Gateway, who sell directly to customers over the telephone and the Internet, are weathering this change better than Compaq, which relies mostly on third-party resellers for its sales. Meanwhile, Compaq is getting beaten by the likes of IBM and Hewlett Packard in the work-station and server business.
There’s also a growing consensus that two expensive acquisitions engineered by Pfeiffer-of Tandem Computer in 1997 and the Digital Equipment Corp. in ‘98-have slowed the company down. “Compaq’s world became instantly more complex because of those acquisitions,” says Rick Belluzzo, the CEO of Silicon Graphics Inc.
The mergers filled out Compaq’s offerings in the high-end business markets, but seem to have distracted management with the challenges of integrating new employees and products.
Given Rosen’s devotion to the company, Compaq-watchers were not surprised that he decided to intervene. “Ben is as much at the heart of Compaq as Steve Jobs is at the heart of Apple,” says Dick Shaffer, an analyst at research firm Technologic Partners. Rosen, a native of New Orleans, earned his tech credentials in the ’70s as an analyst for Morgan Stanley, covering the semiconductor industry. In 1977 he started what is now the longest-running computer symposium, PC Forum, and earned the confidence of silicon elites like Bill Gates and Andy Grove. Friends say Rosen is good-humored, extremely well connected in the tech world and such a golf fanatic that he keeps a statue of himself wearing golf clothes in his New York City apartment. He’s also “a tough boss,” says tech doyenne Esther Dyson, who bought PC Forum from him in 1984.
Ex-CEO Pfeiffer had more caustic things to say about his former supervisor. On CNN.fn last week, Pfeiffer argued that Rosen and the board had authorized his strategy, and he complained of “behind-the-back discussion. I would have expected more openness.” He blamed market forces for Compaq’s troubles, but in a display of unpropitious timing, rival IBM announced unexpectedly high earnings. Its stock soared 13 percent, making Compaq a lonely occupant in Wall Street’s tech doghouse.
So for now, Rosen will run the company with two fellow board members while he looks for a successor. SGI’s Rick Belluzzo was mentioned by The Wall Street Journal as a candidate-but he insists he’ll stay where he is. So who will succeed Pfeiffer? That’s another question waiting to be answered by Ben Rosen.
