Editing Compaq (section)

====Ouster of Pfeiffer====
In early 1998, Compaq had the problem of bloated PC inventories. By summer 1998, Compaq was suffering from product-quality problems. Robert W. Stearns, SVP of Business Development, said "In [Pfeiffer's] quest for bigness, he lost an understanding of the customer and built what I call empty market share—large but not profitable", while Jim Moore, a technology strategy consultant with GeoPartners Research in Cambridge, Mass., says Pfeiffer "raced to scale without having economies of scale." The "colossus" that Pfeiffer built up was not nimble enough to adapt to the fast-changing computer industry. That year Compaq forecast demand poorly and shipped too many PCs, causing resellers to dump them at fire sale prices, and since Compaq protected resellers from heavy losses it cost them two quarters of operating profits.<ref name="cnn.com"/>

Pfeiffer also refused to develop a potential successor, rebuffing Rosen's suggestion to recruit a few executives to create the separate position of Compaq president. The board complained that Pfeiffer was too removed from management and the rank-and-file, as he surrounded himself with a "clique" of Chief Financial Officer Earl Mason, Senior Vice-President John T. Rose, and Senior Vice-President of Human Resources Hans Gutsch. Current and former Compaq employees complained that Gutsch was part of a group of senior executives, dubbed the "A team", who controlled access to Pfeiffer. Gutsch was said to be a "master of corporate politics, pitting senior vice presidents against each other and inserting himself into parts of the company that normally would not be under his purview". Gutsch, who oversaw security, had an extensive security system and guard station installed on the eight floor of CCA-11, where the company's senior vice presidents worked.<ref name="dwightsilverman.com">{{cite web |url = http://www.dwightsilverman.com/cpq-mgmt.htm |title = Schism in management blamed for Compaq woes |access-date = 29 June 2016 |archive-date = 15 April 2016 |archive-url = https://web.archive.org/web/20160415215516/http://www.dwightsilverman.com/cpq-mgmt.htm |url-status = dead }}</ref> There were accusations that Gutsch and others sought to divide top management, although this was regarded by others as sour grapes on the part of executives who were shut out of planning that involved the acquisitions of Tandem Computers and Digital Equipment Corp.<ref name="businessweek.com"/><ref>{{cite web |url = http://www.dwightsilverman.com/gutsch.htm |title = Compaq's Gutsch quits post |publisher = Dwightsilverman.com |date = 1999-06-16 |access-date = 2012-11-16 |archive-date = 2013-10-04 |archive-url = https://web.archive.org/web/20131004224413/http://www.dwightsilverman.com/gutsch.htm |url-status = dead }}</ref> Pfeiffer reduced the size of the group working on the deal due to news leaks, saying "We cut the team down to the minimum number of people—those who would have to be directly involved, and not one person more". Robert W. Stearns, Compaq's senior vice president for business development, with responsibility for mergers and acquisitions, had opposed the acquisition of Digital as the cultural differences between both companies were too great, and complained that he was placed on the "B team" as a result.<ref>{{cite web |url = http://amarillo.com/stories/060199/bus_heart.shtml |archive-url = https://web.archive.org/web/20131007130647/http://amarillo.com/stories/060199/bus_heart.shtml |url-status = dead |archive-date = 7 October 2013 |title = Access to Pfeiffer may have been heart of Compaq woes - Amarillo.com - Amarillo Globe-News |access-date = 29 June 2016 }}</ref>

Compaq entered 1999 with strong expectations. Fourth-quarter 1998 earnings reported in January 1999 beat expectations by six cents a share with record 48 percent growth. The company launched ''Compaq.com'' as the key for its new direct sales strategy, and planned an IPO for [[AltaVista]] toward the end of 1999 in order to capitalize on the dotcom bubble.<ref name=autogenerated1>{{cite web |url =https://www.cnet.com/news/for-compaq-1999-was-the-year-that-wasnt/|title = For Compaq, 1999 was the year that wasn't |publisher =CNET|access-date = 11 June 2020 }}</ref> However, by February 1999, analysts were sceptical of Compaq's plan to sell both direct and to resellers. Compaq was hit with two class-action lawsuits, as a result of CFO Earl Mason, SVP John Rose, and other executives selling {{US$|50 million}} of stock before a conference call with analysts, where they noted that demand for PCs was slowing down.<ref name="Resign">{{cite magazine |author = Om Malik |url = https://www.forbes.com/1999/04/19/mu1.html|title = Compaq's CEO Pfeiffer and CFO Mason resign |magazine = Forbes.com |access-date = 2012-11-16 }}</ref><ref name="WSJ Stepdown">{{cite news |url=https://www.wsj.com/articles/SB928336284926775812 |work = The Wall Street Journal |title = Compaq's Rose Steps Down as Head Of Firm's Computer-Server Business | url-access=subscription}}</ref><ref>{{cite web |url = http://securities.stanford.edu/1010/CPQ98/cv981148complaint031699.htm |title = Compaq Computer Corporation - Class Action Case 98CV01148 - Securities Class Action Complaint |access-date = 2013-11-15 |url-status = dead |archive-url = https://web.archive.org/web/20131202232146/http://securities.stanford.edu/1010/CPQ98/cv981148complaint031699.htm |archive-date = 2013-12-02 }}</ref>

On April 17, 1999, just nine days after Compaq reported first-quarter profit being at half of what analysts had expected, the latest in a string of earnings disappointments, Pfeiffer was forced to resign as CEO in a coup led by board chairman [[Benjamin M. Rosen|Ben Rosen]]. Reportedly, at the special board meeting held on April 15, 1999, the directors were unanimous in dismissing Pfeiffer. The company's stock had fallen 50 percent since its all-time high in January 1999.<ref name="businessweek1999"/> Compaq shares, which traded as high as {{US$|long=no|51.25}} early in 1999, dropped 23 percent on April 12, 1999, the first day of trading after the first-quarter announcement and closed the following Friday at {{US$|long=no|23.62}}.<ref name="Resign"/> During three out of the last six quarters of Pfeiffer's tenure, the company's revenues or earnings had missed expectations.<ref name="autogenerated1999">{{cite news |url = https://money.cnn.com/1999/07/22/technology/compaq/ |title = Compaq picks new CEO|publisher = Money.cnn.com |date = 1999-07-22 |access-date = 2012-11-16 }}</ref> While rival [[Dell]] had 55% growth in U.S. PC sales in the first quarter of 1999, Compaq could only manage 10%.<ref name="businessweek.com"/><ref name="ReferenceB"/><ref name="ReferenceC"/><ref name="WSJ Stepdown"/> Rosen suggested that the accelerating change brought about by the Internet had overtaken Compaq's management team, saying "As a company engaged in transforming its industry for the Internet era, we must have the organizational flexibility necessary to move at Internet speed." In a statement, Pfeiffer said "Compaq has come a long way since I joined the company in 1983" and "under Ben's guidance, I know this company will realize its potential."<ref>{{cite news |url = https://www.nytimes.com/1999/04/19/us/compaq-computer-ousts-chief-executive.html?pagewanted=2&src=pm |work = The New York Times |title = Compaq Computer Ousts Chief Executive |date = April 19, 1999 |first = Steve |last = Lohr |url-access=limited }}</ref> Rosen's priority was to have Compaq catchup as an E-commerce competitor, and he also moved to streamline operations and reduce the indecision that plagued the company.<ref name="businessweek.com"/>

Roger Kay, an analyst at International Data Corporation, observed that Compaq's behaviour at times seemed like a personal vendetta, noting that "Eckhard has been so obsessed with staying ahead of Dell that they focused too hard on market share and stopped paying attention to profitability and liquidity. They got whacked in a price war that they started."<ref name=autogenerated3>{{cite web |url =https://www.cnet.com/news/compaq-ousts-ceo-in-major-shakeup/|title = Compaq ousts CEO in major shakeup |publisher =CNET|access-date = 29 June 2016 }}</ref> Subsequent earnings releases from Compaq's rivals, Dell, Gateway, IBM, and Hewlett-Packard suggested that the problems were not affecting the whole PC industry as Pfeiffer had suggested.<ref name="dwightsilverman.com"/> Dell and Gateway sold direct, which helped them to avoid Compaq's inventory problems and compete on price without dealer markups, plus Gateway sold web access and a broad range of software tailored to small businesses. Hewlett-Packard's PC business had similar challenges like Compaq but this was offset by HP's extremely lucrative printer business, while IBM sold PCs at a loss but used them to lock in multi-year services contracts with customers.<ref name="cnn.com"/>

After Pfeiffer's resignation, the board established an office of the CEO with a triumvirate of directors; Rosen as interim CEO and vice chairmen Frank P. Doyle and Robert Ted Enloe III.<ref>{{cite news |author = <!--Start Byline--><!--End Byline--> |url = https://money.cnn.com/1999/04/19/companies/cpq/ |title = CEO Pfeiffer is out at Compaq – Apr. 19, 1999 |publisher = Money.cnn.com |date = 1999-04-19 |access-date = 2012-11-16 }}</ref> They began "cleaning house", as shortly afterward many of Pfeiffer's top executives resigned or were pushed out, including John J. Rando, Earl L. Mason, and John T. Rose. Rando, senior vice president and general manager of Compaq Services, was a key player during the merger discussions<ref>{{cite web |url = https://archive.org/stream/merginginformati00ross/merginginformati00ross_djvu.txt |title = Full text of "Merging information technology and cultures at Compaq-Digital : case study" |access-date = 29 June 2016 }}</ref> and the most senior executive from Digital to remain with Compaq after the acquisition closed<ref>{{cite news |url = http://news.bbc.co.uk/2/hi/business/111676.stm |work = BBC News |title = Compaq sacks 6% to absorb Digital |date = 1998-06-12 }}</ref><ref>{{cite news |url = https://money.cnn.com/1998/06/10/technology/digital/ |work = CNN |title = Palmer to leave Digital |date = 1998-06-10 }}</ref><ref>{{cite news |url = https://www.nytimes.com/1999/05/12/business/compaq-losing-a-top-officer.html |work = The New York Times |title = Compaq Losing A Top Officer |date = 1999-05-12 |url-access=limited}}</ref> and had been touted by some as the heir-apparent to Pfeiffer. Rando's division had performed strongly as it had sales of {{US$|long=no|1.6 billion}} for the first quarter compared to {{US$|long=no|113 million}} in 1998, which met expectations and was anticipated to post accelerated and profitable growth going forward. At the time of Rando's departure, Compaq Services ranked third behind those of IBM and EDS, while slightly ahead of [[Hewlett-Packard]]'s and [[Andersen Consulting]], however customers switched from Digital technology-based workstations to those of HP, IBM, and Sun Microsystems.<ref>{{cite web |url = http://www.swlearning.com/management/hitt/sm6e/isc/focus/sf01_02.html |title = Strategic Focus |access-date = 29 June 2016 |archive-date = December 3, 2013 |archive-url = https://web.archive.org/web/20131203000552/http://www.swlearning.com/management/hitt/sm6e/isc/focus/sf01_02.html |url-status = dead }}</ref> Mason, senior vice president and chief financial officer, had previously been offered the job of chief executive of Alliant Foodservice, Inc., a foodservice distributor based in Chicago, and he informed Compaq's board that he accepted the offer.<ref>{{cite web |url = http://www.prnewswire.com/news-releases/alliant-foodservice-inc-names-earl-l-mason-as-president-and-chief-executive-officer-74097312.html |title = Alliant Foodservice, Inc. Names Earl L. Mason as President and Chief Executive Officer |access-date = 29 June 2016 |archive-url = https://web.archive.org/web/20160423160944/http://www.prnewswire.com/news-releases/alliant-foodservice-inc-names-earl-l-mason-as-president-and-chief-executive-officer-74097312.html |archive-date = 23 April 2016 |url-status = dead }}</ref><ref name=autogenerated3 /><ref>{{cite web|url=https://www.cnet.com/news/compaq-management-exodus-cranking-up/ |title = Compaq management exodus cranking up|publisher = CNET |date = 2002-01-02 |access-date = 2012-08-26 }}</ref><ref>{{cite web |url = https://www.cnet.com/news/compaq-exec-steps-down/|title = Compaq exec steps down|publisher = CNET |date =2002-01-02|access-date = 2020-06-11 }}</ref> Rose, senior vice president and general manager of Compaq's Enterprise Computing group, resigned effective as of June 3 and was succeeded by Tandem veteran Enrico Pesatori. Rose was reportedly upset that he was not considered for the CEO vacancy, which became apparent once [[Michael Capellas]] was named COO. While Enterprise Computing, responsible for engineering and marketing of network servers, workstations and data-storage products, reportedly accounted for one third of Compaq's revenues and likely the largest part of its profits, it was responsible for the earnings shortfall in Q1 of 1999.<ref name="findarticles.com">{{cite news |url = http://findarticles.com/p/articles/mi_m0CGN/is_3676/ai_54809066/ |work = [[Computergram International]] |title = Another Top Exec Hits the Road at Compaq |year = 1999 |url-status = dead |archive-url = https://web.archive.org/web/20150903220005/http://findarticles.com/p/articles/mi_m0CGN/is_3676/ai_54809066/ |archive-date = 2015-09-03 }}</ref> In addition, Rose was part of the "old guard" close to former CEO Pfeiffer, and he and other Compaq executives had been criticized at the company's annual meeting for selling stock before reporting the sales slowdown.<ref name="TopExec">{{cite web |url = https://www.cnet.com/news/compaq-names-coo-top-exec/ |title = Compaq names COO, top exec |publisher =CNET|access-date = 11 June 2020 }}</ref> Rose was succeeded by SVP Enrico Pesatori, who had previously worked as a senior executive at [[Olivetti S.p.A.|Olivetti]], [[Zenith Data Systems]], [[Digital Equipment Corporation]], and [[Tandem Computers]].<ref name="WSJ Stepdown"/> Capellas was appointed COO after pressure mounted on Rosen to find a permanent CEO, however it was reported that potential candidates did not want to work under Rosen as chairman.<ref name=autogenerated1 /> Around the same time Pesatori was placed in charge of the newly created Enterprise Solutions and Services Group, making him Compaq's second most powerful executive in operational responsibility after Capellas.<ref>{{cite web|url=https://www.zdnet.com/article/enrico-pesatori-will-he-ever-be-no-1/|title = Enrico Pesatori: Will he ever be No.1?|website = [[ZDNet]]}}</ref><ref>{{cite web|url=https://www.theregister.co.uk/2000/05/08/compaqs_enrico_the_cloak_takes/|title=Compaq's Enrico the Cloak takes wing|website=[[The Register]]}}</ref>

Pfeiffer's permanent replacement was Michael Capellas, who had been serving as Compaq's SVP and [[Chief information officer|CIO]] for under a year. A couple months after Pfeiffer's ouster, Capellas was elevated to interim [[chief operating officer]] on June 2, 2000,<ref name="findarticles.com"/> and was soon appointed president and CEO. Capellas also assumed the title of chairman on September 28, 2000, when Rosen stepped down from the board of directors.<ref name="h41131.www4.hp.com"/> At his retirement, Rosen proclaimed "These are great achievements—to create 65,000 jobs, {{US$|long=no|40 billion}} in sales and {{US$|long=no|40 billion}} in market value, all starting with a sketch and a dream".<ref>{{cite news |url = http://usatoday30.usatoday.com/tech/techinvestor/2001-09-04-compaq-history.htm |title = Compaq: From place mat sketch to PC giant |publisher = Usatoday30.usatoday.com |date = 2001-09-04 |access-date = 2012-11-16 }}</ref>