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Compaq Promotes COO Michael Capellas

July 23, 1999

NEW YORK (AP) _ Reaching inside its own ranks for a new leader, Compaq Computer Corp. named chief operating officer Michael D. Capellas as chief executive on Thursday in a bid to revive its flagging computer sales and profits.

The choice of a relatively unknown manager surprised some Wall Street analysts, who expected Compaq to pick an outside executive experienced in running a major company. Capellas, 44, was the company’s acting chief operating officer for less than two months, and before that was Compaq’s chief technology officer.

``It’s a surprise because they chose a Mr. Insider instead of a Mr. Outsider,″ said David Wu, an analyst with ABN AMRO Chicago Corp., in San Francisco. But, he added, ``I don’t care where he comes from, it’s what he does that matters.″

Capellas, 44, succeeds Eckhard Pfeiffer, who was forced out in April after Compaq’s first-quarter profit came in at less than half of analysts’ expectations. The company has been under pressure from Wall Street to quickly fill a yawning management gap, aggravated by the departure of another half-dozen top managers in Pfeiffer’s wake.

The new chief executive, who takes office immediately, faces a challenge in reviving Houston-based Compaq, which has been hit hard by slow computer sales and shrinking profits.

Continental Airlines President Gregory D. Brenneman and Oracle Corp. President Ray Lane were reported to have turned down the Compaq CEO job, though Compaq chairman Benjamin Rosen said that only Capellas was offered the job.

``There was only one choice,″ he said at a press conference announcing the appointment.

After pioneering the market for inexpensive personal computers in the early 1990s, Compaq’s profits have plunged amid escalating price wars.

The hiring opens the door for the replacement of other key executive positions, including the top human-resources post. Compaq named an acting chief financial officer, Ben Wells. Rosen and two other board members have performed the duties of chief executive since Pfeiffer’s departure.

Compaq is expected to report a second-quarter loss of about $250 million next week, reflecting the company’s troubles in selling personal computers as well as bigger business machines.

The new CEO faces the challenge of integrating Digital Equipment Corp., which Compaq bought for $9 billion a year ago.

Compaq has had trouble increasing sales of its Alpha business computers, which were made by Digital. And Compaq has stumbled in trying to cope with the more efficient sales model of Dell Computer Corp., which saves money by selling computers directly to customers, eliminating the markup charged by retailers.

``The place is a hell of a challenge. I think that is going to be an extraordinarily difficult job,″ said Mel Connet, head of the Connet & Co. executive recruitment firm in Atherton, Calif.

Capellas, at the press conference in New York, gave a lively presentation sketching out his major areas of focus, including reorganizing the company, bolstering sales of PCs and big business machines, and simplifying the company’s methods of distribution.

Responding to questions about a lack of executive-level experience, Capellas said in part that his background as Compaq’s chief technology officer had helped him better understand customers’ needs.

``The strategy is about solving customers’ business problems, and I have done that all my life,″ he said.

Capellas was named acting chief operating officer on June 2, with responsibility for Compaq’s overall strategic planning, organizational changes and operations. He joined Compaq as chief technology officer in August 1998.

Before joining Compaq, Capellas headed up software maker Oracle Corp.’s sales to oil and gas companies. Before that, he was with Schlumberger Ltd., an oil-field services company, for 18 years in a variety of management positions.

Rosen said Compaq had chosen Capellas above a field of candidates because he had a track record in improving the company’s management, technology and distribution system.

``We set out to find the ideal CEO and we discovered him right here at Compaq, hard at work,″ Rosen said. ``As COO, Michael has already mobilized the organization, moving us forward at Internet speed.″

Shares of Compaq were down $1.06 1/4, or by 4 percent, at $24.93 3/4 in trading on the New York Stock Exchange before the news was announced at the close of financial markets.

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