Editing Compaq (section)

===1990s===
By 1989, ''The New York Times'' wrote that being the first to release a 80386-based personal computer made Compaq the leader of the industry and "hurt no company more - in prestige as well as dollars - than" IBM.{{r|lewis19891022}} The company was so influential that observers and its executives spoke of "Compaq compatible". ''InfoWorld'' reported that "In the [ISA market] Compaq is already IBM's equal in being seen as a safe bet", quoting a [[sell-side analyst]] describing it as "now ''the'' safe choice in personal computers". Even rival [[Tandy Corporation]] acknowledged Compaq's leadership, stating that within the Gang of Nine "when you have 10 people sit down before a table to write a letter to the president, someone has to write the letter. Compaq is sitting down at the typewriter".<ref name="iw19890123">{{cite news |url = https://books.google.com/books?id=KzoEAAAAMBAJ&pg=PP1 |title = Compaq Vying To Become the IBM of the '90s |work = InfoWorld |date = 1989-01-23 |access-date = 17 March 2016 |author1 = LaPlante, Alice |author2 = Furger, Roberta |pages = 1, 8 }}</ref> A 1990 [[American Institute of Certified Public Accountants]] member survey found that 16% of respondents used Compaq computers, second only to IBM (23%). Epson (4%) and all other PC-compatible vendors had single-digit shares.<ref name="aicpa1990">{{Cite report |url=https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=1563&context=aicpa_guides |title=1990 AICPA survey of computer usage |author-link=American Institute of Certified Public Accountants |year=1990 |id=561 |access-date=2025-04-30}}</ref>

====Ouster of co-founders====
Michael S. Swavely, president of Compaq's North American division since May 1989, took a six-month sabbatical in January 1991 (which would eventually become retirement effective on July 12, 1991). [[Eckhard Pfeiffer]], then president of Compaq International, was named to succeed him. Pfeiffer also received the title of chief operating officer, with responsibility for the company's operations on a worldwide basis, so that Canion could devote more time to strategy.<ref>{{cite news |url = http://topics.nytimes.com/topics/reference/timestopics/people/p/eckhard_pfeiffer/index.html?offset=10&s=newest |newspaper = The New York Times |first = Thomas C. |last = Hayes |title = Pfeiffer |access-date = 2012-11-16 |url-access=limited }}</ref> Swavely's abrupt departure in January led to rumours of turmoil in Compaq's executive suite, including friction between Canion and Swavely, likely as Swavely's rival Pfeiffer had received the number two leadership position. Swavely's U.S. marketing organization was losing ground with only 4% growth for Compaq versus 7% in the market, likely due to short supplies of the LTE 386s from component shortages, rivals that undercut Compaq's prices by as much as 35%, and large customers who did not like Compaq's dealer-only policy.<ref name=autogenerated2>"{{cite magazine |url=http://www.businessweek.com/stories/1991-02-03/coming-to-america-compaqs-european-star |archive-url=https://archive.today/20131208000636/http://www.businessweek.com/stories/1991-02-03/coming-to-america-compaqs-european-star |url-status=dead |archive-date=December 8, 2013 |title=Coming To America: Compaq's European Star |magazine=Businessweek<!-- Bot generated title --> |url-access=subscription}}</ref> Pfeiffer became president and CEO of Compaq later that year, as a result of a boardroom coup led by board chairman [[Benjamin M. Rosen|Ben Rosen]] that forced co-founder [[Rod Canion]] to resign as president and CEO.<ref>{{cite news |url = https://www.nytimes.com/1992/04/02/business/company-news-compaq-payment-to-former-chief.html?src=pm |work = The New York Times |title = COMPANY NEWS; Compaq Payment To Former Chief |date = April 2, 1992 |url-access=limited }}</ref>

Pfeiffer had joined Compaq from [[Texas Instruments]], and established operations from scratch in both Europe and Asia. Pfeiffer was given US$20,000 to start up Compaq Europe<ref name=vcfed>{{cite web |title = Compaq Computer Corporation [Archive] - Vintage Computer Forum |url = http://www.vcfed.org/forum/archive/index.php/t-32148.html |website = www.vcfed.org |access-date = 26 July 2016 |archive-date = 18 September 2016 |archive-url = https://web.archive.org/web/20160918102625/http://www.vcfed.org/forum/archive/index.php/t-32148.html |url-status = dead }}</ref> He started up Compaq's first overseas office in Munich in 1984. By 1990, Compaq Europe was a $2 billion business and number two behind IBM in that region, and foreign sales contributed 54 percent of Compaq's revenues.<ref>{{cite news |url = https://www.nytimes.com/1992/10/25/business/sound-bytes-he-who-fielded-compaq-s-swat-team.html?src=pm |work = The New York Times |first = Peter H. |last = Lewis |title = Sound Bytes; He Who Fielded Compaq's 'SWAT Team' |date = October 25, 1992 |url-access=limited }}</ref><ref name="nytimes.com">{{cite news |url = https://www.nytimes.com/1991/10/26/business/no-headline-626391.html?ref=eckhardpfeiffer |work = The New York Times |first = Thomas C. |last = Hayes |title = No Headline |date = October 26, 1991 |url-access=limited }}</ref> Pfeiffer, while transplanting Compaq's U.S. strategy of dealer-only distribution to Europe, was more selective in signing up dealers than Compaq had been in the U. S. such that European dealers were more qualified to handle its increasingly complex products.<ref name=autogenerated2 />

During the 1980s, under Canion's direction Compaq had focused on engineering, research, and quality control, producing high-end, high-performance machines with high profit margins that allowed Compaq to continue investing in engineering and next-generation technology. This strategy was successful as Compaq was considered a trusted brand, while many other IBM clones were untrusted due to being plagued by poor reliability. However, by the end of the eighties many manufacturers had improved their quality and were able to produce inexpensive PCs with off-the-shelf components, incurring none of the R&D costs which allowed them to undercut Compaq's expensive computers.<ref name="scribd1"/> Faced with lower-cost rivals such as [[Dell]], [[AST Research]], and [[Gateway 2000]], Compaq suffered a $71 million loss for that quarter, their first loss as a company, while the stock had dropped by over two-thirds.<ref name="ReferenceA">{{cite news |url = https://www.nytimes.com/1997/06/16/business/compaq-computer-looks-back-and-sees-the-competition-gaining.html?pagewanted=print&src=pm |work = The New York Times |first = Laurence |last = Zuckerman |title = Compaq Computer Looks Back and Sees the Competition Gaining |date = June 16, 1997 |url-access=limited }}</ref><ref>{{cite news |url = https://www.nytimes.com/1991/11/06/business/compaq-computer-outlines-new-lower-cost-approach.html?src=pm |work = The New York Times |first = Lawrence M. |last = Fisher |title = Compaq Computer Outlines New Lower-Cost Approach |date = November 6, 1991 |url-access=limited }}</ref> An analyst stated that "Compaq has made a lot of tactical errors in the last year and a half. They were trend-setters, now they are lagging". Canion initially believed that the 1990s recession was responsible for Compaq's declining sales but insisted that they would recover once the economy improved, however Pfeiffer's observation of the European market noted that it was competition as rivals could match Compaq at a fraction of the cost. Under pressure from Compaq's board to control costs as staff was ballooning at their Houston headquarters despite falling U.S. sales, while the number of non-U.S. employees had stayed constant, Compaq made its first-ever layoffs (1400 employees which was 12% of its workforce) while Pfeiffer was promoted to EVP and COO.<ref name="scribd1"/>

Rosen and Canion had disagreed about how to counter the cheaper Asian PC imports, as Canion wanted Compaq to build lower cost PCs with components developed in-house in order to preserve Compaq's reputation for engineering and quality, while Rosen believed that Compaq needed to buy standard components from suppliers and reach the market faster. While Canion developed an 18-month plan to create a line of low-priced computers, Rosen sent his own Compaq engineering team to [[COMDEX]] without Canion's knowledge and discovered that a low-priced PC could be made in half the time and at lower cost than Canion's initiative.<ref name="scribd1"/><ref>{{cite web |url = http://www.entrepreneur.com/article/197620 |title = Joseph R. "Rod" Canion |publisher = Entrepreneur.com |date = 2008-10-10 |access-date = 2012-08-26 }}</ref>

Rosen initiated a 14-hour board meeting, and the directors also interviewed Pfeiffer for several hours without informing Canion. At the conclusion, the board was unanimous in picking Pfeiffer over Canion. As Canion was popular with company workers, 150 employees staged an impromptu protest with signs stating, "We love you, Rod." and taking out a newspaper ad saying "Rod, you are the wind beneath our wings. We love you."<ref name="entrepreneur1"/> Canion declined an offer to remain on Compaq's board<ref name="nytimes.com"/> and was bitter about his ouster as he did not speak to Rosen for years, although their relationship became cordial again. In 1999, Canion admitted that his ouster was justified, saying "I was burned out. I needed to leave. He [Rosen] felt I didn't have a strong sense of urgency". Two weeks after Canion's ouster, five other senior executives resigned, including remaining company founder [[Jim Harris (entrepreneur)|James Harris]] as SVP of Engineering. These departures were motivated by an enhanced severance or early retirement, as well as an imminent demotion as their functions were to be shifted to vice presidents.<ref name="businessweek.com">{{cite web |url = http://www.businessweek.com/1999/99_30/b3639001.htm |title = Ben Rosen: The Lion in Winter |publisher = Businessweek.com |date = 1999-07-26 |access-date = 2012-08-26 |url-status = dead |archive-url = https://web.archive.org/web/20110909135243/http://www.businessweek.com/1999/99_30/b3639001.htm |archive-date = 2011-09-09 }}</ref>

====Market ascension====
[[File:Compaq Presario 425 (31404884663).jpg|thumb|An early-1990s [[Compaq Presario]] [[All-in-one computer|all-in-one]]]]
Under Pfeiffer's tenure as chief executive, Compaq entered the retail computer market with the [[Compaq Presario]] as one of the first manufacturers in the mid-1990s to market a sub-$1000 PC. In order to maintain the prices it wanted, Compaq became the first first-tier computer manufacturer to utilise CPUs from [[AMD]] and [[Cyrix]]. The two price wars resulting from Compaq's actions ultimately drove numerous competitors from the market, such as [[Packard Bell]] and [[AST Research]]. From third place in 1993, Compaq had overtaken Apple Computer and even surpassed IBM as the top PC manufacturer in 1994, as both IBM and Apple were struggling considerably during that time.<ref name="Money.cnn.com">{{cite magazine |url = https://money.cnn.com/magazines/fortune/fortune_archive/1996/04/01/210990/index.htm |title = FAST TIMES AT COMPAQ WITH ECKHARD PFEIFFER AT THE WHEEL, COMPAQ IS PASSING OTHER PC MAKERS. THE COMPANY RECENTLY HIT A SPEED BUMP--BUT THE FUTURE'S SO BRIGHT THE CEO HAS TO WEAR SHADES. |magazine = Fortune.com |first = DAVID |last = KIRKPATRICK |date = April 1, 1996 |access-date = November 16, 2012 }}</ref> Compaq's inventory and gross margins were better than that of its rivals which enabled it to wage the price wars.<ref name="ReferenceA"/><ref>{{cite news |url = https://www.nytimes.com/1994/08/16/business/company-news-wide-range-of-price-cuts-by-compaq.html?src=pm |work = The New York Times |first = Lawrence M. |last = Fisher |title = COMPANY NEWS; Wide Range Of Price Cuts By Compaq |date = August 16, 1994 |url-access=limited }}</ref>

Compaq had decided to make a foray into printers in 1989, and the first models were released to positive reviews in 1992. However, Pfeiffer saw that the prospects of taking on market leader [[Hewlett-Packard]] (who had 60% market share) was tough, as that would force Compaq to devote more funds and people to that project than originally budgeted. Compaq ended up selling the printer business to Xerox and took a charge of $50 million.<ref name="scribd1"/><ref name=autogenerated4>{{cite news |url = https://www.bloomberg.com/news/articles/1995-07-30/compaq-all-things-to-all-networks |title = Compaq: All Things To All Networks? |first = Gary |last = Mcwilliams |newspaper = Bloomberg.com |date = 31 July 1995 |access-date = 29 June 2016 | url-access=subscription}}</ref>
{| class="wikitable floatright"
|+United States PC market unit shipments (1994)<ref>{{cite web | url=https://www.tech-insider.org/statistics/research/1996/0126.html | title=Worldwide PC Market Grew 24 Percent in 1995 }}</ref>
!Company
!Shipments (000s)
!% Market Share
|-
|'''Compaq'''
|2,335
|12.6
|-
|[[Apple Inc.|Apple]]
|2,165
|11.6
|-
|[[Packard Bell]]
|2,130
|11.4
|-
|[[IBM]]
|1,669
|9.0
|-
|[[Gateway 2000]]
|960
|5.2
|-
|[[Dell]]
|790
|4.2
|-
|[[AST Research]]
|720
|3.9
|-
|[[Toshiba]]
|676
|3.6
|}
In 1994, Compaq formed a joint venture with [[ADI Corporation]], a Taiwanese manufacturer who produced the bulk of Compaq's monitors, to raise multiple factories in Mexico, Brazil, and Europe to assemble and store ADI's monitors.<ref>{{cite journal | last=Kanellos | first=Michael | date=November 28, 1994 | url=https://www.proquest.com/docview/227487080/ | title=ADI develops offshore sites with Compaq's aid | journal=Computer Reseller News | publisher=CMP Publications | issue=607 | page=26 | via=ProQuest}}</ref> Compaq sold many of the monitors that they offered to customers of their Deskpro and Presario lines as standalone units to third-party resellers, including their popular 171FS monitor.<ref>{{cite journal | last=Silverman | first=Dwight | date=May 15, 1994 | url=https://www.newspapers.com/article/indiana-gazette-dont-scrimp-on-a-monito/146922017/ | title=If you have the bucks, here are two monitors to buy | journal=Houston Chronicle | publisher=Hearst Communications | page=F2 | via=Newspapers.com}}</ref><ref>{{cite journal | last=Barnes | first=Katie | date=September 12, 1995 | url=https://books.google.com/books?id=GL59pngdbfQC&pg=PA152 | title=Compaq 171FS | journal=PC Magazine | publisher=Ziff-Davis | volume=14 | issue=15 | page=152 | via=Google Books}}</ref>

On June 26, 1995, Compaq reached an agreement with [[Cisco Systems|Cisco Systems, Inc.]], in order to get into networking, including digital modems, routers, and switches favoured by small businesses and corporate departments, which was now a $4 billion business and the fastest-growing part of the computer hardware market. Compaq also built up a network engineering and marketing staff.<ref name=autogenerated4 />

====Management shuffle====
In 1996, despite record sales and profits at Compaq, Pfeiffer initiated a major management shakeup in the senior ranks.<ref>{{cite news |url = https://www.nytimes.com/1996/10/25/business/compaq-shakes-up-its-top-management.html?src=pm |work = The New York Times |first = Laurence |last = Zuckerman |title = Compaq Shakes Up Its Top Management |date = October 25, 1996 |url-access=limited }}</ref> John T. Rose, who previously ran Compaq's desktop PC division, took over the corporate server business from SVP Gary Stimac who had resigned. Rose had joined Compaq in 1993 from Digital Equipment Corporation where he oversaw the personal computer division and worldwide engineering, while Stimac had been with Compaq since 1982 and was one of the longest-serving executives. Senior Vice-president for North America Ross Cooley announced his resignation effective at the end of 1996. CFO Daryl J. White, who joined the company in January 1983 resigned in May 1996 after 8 years as CFO. Michael Winkler, who joined Compaq in 1995 to run its portable computer division, was promoted to general manager of the new PC products group.<ref name="nytimes1996">{{cite news |url = https://www.nytimes.com/1996/07/03/business/compaq-regroups-into-3-management-units.html |title = Compaq Regroups Into 3 Management Units – New York Times |work = [[The New York Times]] |date = 1996-07-03 |access-date = 2012-11-16 |url-access=limited }}</ref><ref name="businessweek1996">{{cite magazine |url = http://www.businessweek.com/stories/1996-07-21/compaq-at-the-crossroads |archive-url = https://web.archive.org/web/20141026092331/http://www.businessweek.com/stories/1996-07-21/compaq-at-the-crossroads |url-status = dead |archive-date = October 26, 2014 |title = Compaq At The 'Crossroads' |magazine = Businessweek |date = 1996-07-21 |access-date = 2012-11-16 }}</ref> Earl Mason, hired from Inland Steel effective in May 1996, immediately made an impact as the new CFO. Under Mason's guidance, Compaq utilised its assets more efficiently instead of focusing just on income and profits, which increased Compaq's cash from {{US$|long=no|700 million}} to nearly {{US$|long=no|5 billion}} in one year. Additionally, Compaq's return on invested capital (after-tax operating profit divided by operating assets) doubled to 50 percent from 25 percent in that period.<ref name="ReferenceA"/>

Compaq had been producing the PC chassis at its plant in [[Shenzhen]], [[China]] to cut costs. In 1996, instead of expanding its own plant, Compaq asked a Taiwanese supplier to set up a new factory nearby to produce the mechanicals, with the Taiwanese supplier owning the inventory until it reached Compaq in Houston.<ref name="businessweek1996"/> Pfeiffer also introduced a new distribution strategy, to build PCs made-to-order which would eliminate the stockpile of computers in warehouses and cut the components inventory down to two weeks, with the supply chain from supplier to dealer linked by complex software.<ref name="nytimes1996"/>

Vice-president for Corporate Development Kenneth E. Kurtzman assembled five teams to examine Compaq's businesses and assess each unit's strategy and that of key rivals. Kurtzman's teams recommended to Pfeiffer that each business unit had to be first or second in its market within three years—or else Compaq should exit that line. Also, the company should no longer use profits from high-margin businesses to carry marginally profitable ones, as instead each unit must show a return on investment.<ref name="businessweek1996"/> Pfeiffer's vision was to make Compaq a full-fledged computer company, moving beyond its main business of manufacturing retail PCs and into the more lucrative business services and solutions that IBM did well at, such as computer servers which would also require more "customer handholding" from either the dealers or Compaq staff themselves.<ref name="nytimes1996"/> Unlike IBM and HP, Compaq would not  build up field technicians and programmers in-house as those could be costly assets, instead Compaq would leverage its partnerships (including those with Andersen Consulting and software maker SAP) to install and maintain corporate systems. This allowed Compaq to compete in the "big-iron market" without incurring the costs of running its own services or software businesses.<ref>{{cite news |url = https://www.bloomberg.com/news/articles/1996-07-21/compaq-at-the-crossroads |title = Compaq At The 'Crossroads' |first = Gary |last = Mcwilliams |newspaper = Bloomberg.com |date = 22 July 1996 |access-date = 29 June 2016 | url-access=subscription}}</ref>

[[Image:Compaq and SCO baseball cap.jpg|thumb|right|upright=0.6|Promotional baseball cap showcasing the alliance between Compaq and SCO]]
Most of Compaq's server sales were for systems that would be running Microsoft's [[Windows NT]] operating system, and indeed Compaq was the largest hardware supplier for Windows NT.<ref name="cnet-1997"/>  However, some 20&nbsp;percent of Compaq servers went for systems that would be running the [[Unix operating system]].<ref name="cnet-1997"/> This was exemplified by a strategic alliance formed in 1997 between Compaq and the [[Santa Cruz Operation]] (SCO), which was known for its server Unix operating system products on Intel-architecture-based hardware.<ref name="cnet-1997">{{cite news | url=https://www.cnet.com/tech/tech-industry/compaq-partners-with-sco/ | title=Compaq partners with SCO | author-first= Brooke | author-last=Crothers | publisher=CNet | date=August 19, 1997 }}</ref> Compaq was also the largest hardware supplier for SCO's Unix products,<ref name="cnet-1997"/> and some 10&nbsp;percent of Compaq's [[ProLiant]] servers ran SCO's [[UnixWare]].<ref name="cnet-1998"/>

In January 1998, Compaq was at its height. CEO Pfeiffer boldly predicted that the [[Wintel|Microsoft/Intel "Wintel" duopoly]] would be replaced by "Wintelpaq".

====Acquisitions====
Pfeiffer also made several major and some minor acquisitions. In 1997, Compaq bought [[Tandem Computers]], known for their [[NonStop (server computers)|NonStop]] server line.<ref name=cnet19970623>{{cite web |url = https://www.cnet.com/news/compaq-buys-tandem/ |title = Compaq buys Tandem |publisher=cnet |date = 1997-06-23 |access-date = 2016-04-26 }}</ref> This acquisition instantly gave Compaq a presence in the higher end business computing market. The alliance between Compaq and SCO took advantage of this to put out the [[UnixWare NonStop Clusters]] product in 1998.<ref name="cnet-1998">{{cite news | url=https://www.cnet.com/tech/tech-industry/compaq-sco-team-on-server-technology/ | title=Compaq, SCO team on server technology | author-first=Michael | author-last=Kanellos | publisher=CNet | date=August 19, 1998 }}</ref>

Minor acquisitions centred around building a networking arm and included [[NetWorth]] based in Irving, Texas and [[Thomas-Conrad]] based in Austin, Texas—both acquired in 1995.<ref>{{cite news |title = COMPAQ COMPUTER TO BUY THOMAS-CONRAD |url = https://www.nytimes.com/1995/10/19/business/company-news-compaq-computer-to-buy-thomas-conrad.html |access-date = 26 July 2016 |work = The New York Times |date = 19 October 1995 |url-access=limited }}</ref>  In 1997, [[Microcom]] was also acquired, based in Norwood, MA, which brought a line of modems, Remote Access Servers (RAS) and the popular Carbon Copy software.<ref>{{cite news |title = Compaq buys Microcom: Compaq Computer Corp. grabbed for a... |url = https://www.chicagotribune.com/1997/04/10/compaq-buys-microcom-compaq-computer-corp-grabbed/ |access-date = 26 July 2016 |agency = Chicago Tribune |date = April 10, 1997 }}</ref>
[[File:Assabet Woolen Mill - Maynard, Massachusetts - DSC04913.jpg|thumb|Former headquarters of [[Digital Equipment Corporation]] (DEC) in [[Maynard, Massachusetts]]. Compaq acquired DEC in 1998.]] 
In 1998, Compaq acquired [[Digital Equipment Corporation]] for a then-industry record of $9.6 billion.<ref>{{Cite magazine |title=Compaq to Acquire Digital |language=en-US |magazine=Wired |url=https://www.wired.com/1998/01/compaq-to-acquire-digital/ |access-date=2022-12-03 |issn=1059-1028}}</ref> The merger made Compaq, at the time, the world's second largest computer maker in the world in terms of revenue behind IBM.<ref name="ReferenceA"/><ref name=":0" /> Digital Equipment, which had nearly twice as many employees as Compaq while generating half the revenue, had been a leading computer company during the 1970s and early 1980s. However, Digital had struggled during the 1990s, with high operating costs. For nine years, the company had lost money or barely broke even, and had recently refocused itself as a "network solutions company". In 1995, Compaq had considered a bid for Digital but only became seriously interested in 1997 after Digital's major divestments and refocusing on the Internet. At the time of the acquisition, services accounted for 45 percent of Digital's revenues (about $6 billion) and their gross margins on services averaged 34 percent, considerably higher than Compaq's 25% margins on PC sales and also satisfying customers who had demanded more services from Compaq for years. Compaq had originally wanted to purchase only Digital's services business but that was turned down.<ref name="cnn.com">{{cite news |url = https://money.cnn.com/magazines/fortune/fortune_archive/1999/05/24/260278/ |title = Eckhard's Gone But the PC Rocks On Compaq's CEO blames his ouster on a savagely competitive industry. But other PC makers are fine |access-date = 2013-11-15 |url-status = dead |archive-url = https://web.archive.org/web/20131203034053/https://money.cnn.com/magazines/fortune/fortune_archive/1999/05/24/260278/ |archive-date = 2013-12-03 |website=CNN Money}}</ref> When the announcement was made, it was initially viewed as a master stroke as it immediately gave Compaq a 22,000 person global service operation to help corporations handle major technological purchases (by 2001 services made up over 20% of Compaq's revenues, largely due to the Digital employees inherited from the merger), in order to compete with IBM. However, it was also a risky merger, as the combined company would have to lay off 2,000 employees from Compaq and 15,000 from Digital which would potentially hurt morale. Furthermore, Compaq fell behind schedule in integrating Digital's operations, which also distracted the company from its strength in low-end PCs where it used to lead the market in rolling out next-generation systems which let rival [[Dell]] grab market share.<ref name="scribd1"/><ref>{{cite web|url=http://www.mhhe.com/business/management/updates/thompson12e/case/dell10.html|archive-url=https://archive.today/20130104110939/http://www.mhhe.com/business/management/updates/thompson12e/case/dell10.html|url-status=dead|archive-date=2013-01-04|title = Dell Computer Corporation Online Case}}</ref> Reportedly Compaq had three consulting firms working to integrate Digital alone.<ref name="businessweek1999">{{cite web |url = http://www.businessweek.com/1999/99_18/b3627136.htm |title = CHART: Compaq's Stock Price |publisher = Businessweek.com |date = 1999-05-03 |access-date = 2012-11-16 |url-status = dead |archive-url = https://web.archive.org/web/20121027010439/http://www.businessweek.com/1999/99_18/b3627136.htm |archive-date = 2012-10-27 }}</ref>

However, Pfeiffer had little vision for what the combined companies should do, or indeed how the three dramatically different cultures could work as a single entity, and Compaq struggled from strategy indecisiveness and lost focus, as a result being caught in between the low end and high end of the market.<ref>{{cite web |author = 24/7 Wall St. |url = http://www.businessinsider.com/the-worst-ceos-in-american-history-2010-5?op=1 |title = The 15 Worst CEOs In American History |website = Business Insider |date = 2010-05-04 |access-date = 2012-11-16 }}</ref> Mark Anderson, president of Strategic News Service, a research firm based in Friday Harbor, Wash. was quoted as saying, "The kind of goals he had sounded good to shareholders – like being a $50 billion company by the year 2000, or to beat I.B.M. – but they didn't have anything to do with customers. The new C.E.O. should look at everything Eckhard acquired and ask did the customer benefit from that. If the answer isn't yes, they should get rid of it." On one hand, Compaq had previously dominated the PC market with its price war but was now struggling against [[Dell]], which sold directly to buyers, avoiding the dealer channel and its markup, and built each machine to order to keep inventories and costs at a minimum.<ref name="businessweek1999"/> At the same time, Compaq, through its acquisitions of the Digital Equipment Corporation in 1998 and Tandem Computers in 1997, had tried to become a major systems company, like IBM and Hewlett-Packard. While IBM and HP were able generate repeat business from corporate customers to drive sales of their different divisions, Compaq had not yet managed to make its newly acquired sales and services organizations work as seamlessly.<ref name="ReferenceB">{{cite news |url = https://www.nytimes.com/1999/04/25/business/business-compaq-at-a-crossroad-the-challenges-for-the-next-chief.html?ref=eckhardpfeiffer |newspaper = The New York Times |first = Saul |last = Hansell |title = BUSINESS; Compaq at a Crossroad: The Challenges for the Next Chief |access-date = 2016-06-13 |date = 1999-04-25 |url-access=limited }}</ref><ref name="ReferenceC">{{cite news |url = https://www.nytimes.com/1999/04/20/business/reinventing-compaq-tasks-for-next-chief.html?ref=eckhardpfeiffer |newspaper = The New York Times |first = Lawrence M. |last = Fisher |title = Reinventing Compaq: Tasks for Next Chief |access-date = 2016-06-13 |date = 1999-04-20 |url-access=limited }}</ref>

====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>