Digital Needs Big Shake-Up, Says Compaq CEO

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January 27, 1998 (10:45 AM EST)

By Douglas Hayward,

Digital has lost its direction and has much to go through before it reaches Compaq's level of profitability and growth, Compaq's chief executive said Tuesday in a blunt evaluation of his proposed new subsidiary.

"In terms of efficiency, a lot needs to happen at Digital -- there's no question," said Eckhard Pfeiffer, president and chief executive of Compaq.

"Digital has been going through a difficult time," he said at a meeting of analysts and journalists in London. Digital's situation has stabilized, but it needs additional momentum, said Pfeiffer, adding that Compaq is known for creating momentum.

Compaq bought Digital for $9.6 billion Monday in a deal described as the largest-ever acquisition in the history of the computer industry.

Digital's technological strength has historically been underexploited by its management, Pfeiffer said. "Digital has always been known for its rich technology, which was never fully utilized," he said. "We can take that much, much further."

The Compaq chief executive launched an attack on Ken Olsen, Digital's founder who resigned in 1992 after refusing to cut jobs and move away from proprietary technology. "Over time, there has been a strong Ken Olsen spirit -- 'not invented here' -- although that has changed over time."

Digital lost its way in the early and mid-1990s because it took its eye off the ball, according to Pfeiffer. "You have to be very, very awake each day and watch what's happening around you in the industry," he said. "You must never be in denial and you must always evaluate and be prepared to change quickly," he said.

"You constantly need to watch where the customers are really moving," Pfeiffer said. "Digital has not done that," he said.

"They were stuck in their space, not willing to accept that the world was changing."

Digital's multi-vendor maintenance and computer services group is a valuable asset for Compaq, according to Pfeiffer. The group will fill a major hole in Compaq's services portfolio, allowing it to bid for large contracts from which it is now excluded, he said.

"Compaq wasn't ready to step up to the table and say, 'We can do it,' said Pfeiffer, referring to major computer services contracts. "We wanted that capability, and now we've acquired it with Digital," Pfeiffer said.

But the chief executive made it clear that Digital will have to change the way it does its business, and he would not rule out large-scale layoffs.

"We will be looking at Digital around the world in terms of their resources and their functions and activities," Pfeiffer said. "That will determine how we get them into a higher gear -- growing and selling more, using Digital resources in a Compaq business model," he said.

Compaq is likely to set up a single corporate PC business unit, merging its own business with that of Digital, but the two companies will otherwise retain separate organizations and separately branded product lines. Bob Palmer, chief executive of Digital, will remain in place at the organization, Pfeiffer said.

Digital and Compaq's established brand names carry tremendous value and should not be abandoned, he said.