Pfeiffer's choice: Kiwis await impact of Compaq purchase

It was undoubtedly the biggest show in town - which really means something in the Big Apple. The music reached its crescendo, the promotional videos wound down and onstage strode Eckhard Pfeiffer to announce to journalists details of the creation of a new juggernaut with its sights set on the lofty financial achievements of IBM and Hewlett-Packard.

It was undoubtedly the biggest show in town — which really means something in the Big Apple. The music reached its crescendo, the promotional videos wound down and onstage strode Eckhard Pfeiffer to announce to journalists details of the creation of a new juggernaut with its sights set on the lofty financial achievements of IBM and Hewlett-Packard.

The setting was appropriate — the event was held in the Cipriani building in Wall Street just around the corner from the New York Stock Exchange — but the actual merger announcement was an anticlimax.

The merger, following hot on the heels of Compaq's acquisition of Tandem, had gained final approval the previous day. Now it was Pfeiffer's turn to give the world's press the final details.

For the New Zealand contingent, most final details will have to wait a while yet. The announcement of a leader to head the New Zealand operation was expected as early as last week but was delayed while the international operation sorts through its initial priorities.

For staff, that must be a cause of some concern. Pfeiffer confirmed that a total of 17,000 people are being whittled from the worldwide business. All up, 15,000 people will be leaving Digital's workforce, while another 2000 will exit from Compaq at a combined cost of up to $US2 billion. Details were confirmed at an emotional shareholders' meeting, although at the journalists' event Pfeiffer seemed strangely reluctant to disclose details at first.

While the transition could take up to a year, the combined enterprise is expected to move quickly on layoffs in order to ease staff fears. Pfeiffer's word to staff is that anyone of value in the "customer interface" need not be concerned. In other words, the organisation wants to reassure its customers that, if anything, relationships will be "enhanced" during the process of change.

The need to act decisively and sensitively was underlined after the opening announcement as Michael Heil, senior vice-president and general manager of worldwide sales and marketing, spoke frankly to journalists from Australasia. Compaq staff tittered nervously as he emphasised that staff at the front end of customer relations wold comue first.

Meanwhile, Compaq-Digital will continue to be preoccupied with its unified vision, described by Pfeiffer as encompassing every level of computing — "from palmtop to the data centre".

Ironically, a delay of up to six months in Intel's Merced chip development could prove a major advantage to Compaq, which is now claiming leadership in the emerging world of 64-bit computing. "We have a real opportunity with [Digital's 64-bit] Alpha," Pfeiffer told journalists. His words were echoed by John Rose, senior vice-president and group general manager of enterprise computing. The Alpha's re-emergence into the limelight is undoubtedly a result of Intel's delays and perhaps because Compaq is discovering both its power and the level of support it has garnered from high-end users.

Pfeiffer remains firmly behind the Wintel partnership. "That is where Compaq is the world market leader," he says. It's what customers are looking for. We are not going to back off any segment." He also stands firm behind Compaq's multiprocessing effort with Tandem and the debut of new four-, six- and eight-way servers.

On the question of Digital's OpenVMS environment, Pfeiffer says Compaq will continue to support it, even if this is simply as a holding pattern as customers migrate to Windows NT. It is the customer who will choose.

Yet another area of concern will be channel reaction to the new hybrid selling structure. Compaq has challenges on two fronts here — it is traditionally a volume reseller, while Digital has concentrated on a total solutions approach. The acquisition makes particular sense from Compaq's point of view — it needs to acquire greater expertise in the areas where Digital has strengths — but the reseller channels might find the situation confusing in the short term. Where Digital was once the enemy, and vice versa, it is now part of the family.

All executives in the new company emphasise that "customer flexibility" will be essential in the new business. While the situation for New Zealand is unclear at this stage, Compaq's international executives say that customers will be able to choose whatever kind of relationship — direct or indirect — they want with the organisation. Compaq is preparing to unveil a solution it calls Active Answers, an extranet site that will structure the delivery of enterprise solutions to customers.

The essential word from all of the top executives is "relationships". The aim is to give customers the choice they want to buy whichever way they want and to build a relationship between vendor and buyer — a cocoon of confidence, security and support for the good of all.

Some resellers might find the new environment confusing. The new Compaq will have to refine its product lines to make choice easier and weed out some of the overlapping products. Where there is no clearly superior product, overlapping product lines will continue to meet customer needs.

For resellers, the need will be to grasp some of the benefits to come from the Compaq-Digital deal and take advantage of the new services as they emerge. Failure to do so could jeopardise their own survival in the long term, especially if the direct model proves of most value to customers.

One of the jewels in Compaq's crown will be Digital's global services unit. The aim is to turn this into a $US15 billion business by 2002. Compaq says up to 70% of its business today does not include maintenance contracts. In future, it expects to sell service contracts in addition to its warranties.

Pfeiffer refutes any suggestions that Compaq's own distribution record in recent times raises cause for concern. Recent problems caused by an inventory glut in the United States have been resolved by reconfiguring the company's distribution system to a build-to-order model. Inventories will now be kept at a minimum level. "Inventories have to be less, otherwise the cost is too high," he says.

"We are now tailoring to customers' changing needs. Where we bid for a large contract we are obviously bidding down to a level where we want to go, giving customers the best price we are welling to give.

"Customers can have either a direct relationship or a traditional relationship with their reseller where they can have certain services or value added to their purchases. Today we cannot refuse to do business the way a customer wants."

Pfeiffer says the new enterprise will be aiming for the highest level of integration between the Unix and NT platforms, driving customers to NT and its packaged solutions as the opportunity arises. Pfeiffer expects 72% of all enterprise solutions to be shrink-wrapped by the end of this year. Partnerships with the likes of SAP, PeopleSoft, Baan and others figure prominently in Compaq's plans.

Brave words aside, Compaq will have to avoid being too distracted from its core business in New Zealand in the coming months. Latest quarterly results show Hewlett-Packard trumping Compaq on the PC sales front, driven largely by the success of the HP Pavilion home computer series. HP is also making inroads into Compaq's server business.

Compaq, with Tandem and Digital, now includes among its customers many of the world's largest organisations in the financial and telecommunications businesses.

How well the enterprise works together will be a continuing challenge. So far the integration of Tandem has not been easy, although the appointment of John Rose signals a change in Compaq's handling of its high-end systems subsidiary. Rose has come from the Tandem camp, as has Enrico Pesatori, now senior vice-president of marketing.

Analysts say Compaq will bolster its business with some regional acquisitions. In New York, John Rando, senior vice-president and group general mnager, services, hinted that one such acquisition was under way in Australia. He would not name the company, nor could he say whether the deal would involve a company with interests in New Zealand as well.

Analysts also say Compaq could look at plugging other gaps in its business, perhaps by purchasing a networking company. In the meantime, it has more than enough on its plate.

- Paul Chan, based in Singapore, has been confirmed as vice-president of Compaq Asia-Pacific.

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