Technology

Compaq Gets Fourth CFO in Two Years

New finance chief Jeff Clarke tells CFO.com about the PC maker's vertical market strategy. Jesse Greene takes over strategic planning role.
Joseph RadiganMarch 19, 2001

Late last week, Compaq Computer announced it was promoting Jeff Clarke to senior vice president and CFO, replacing Jesse Greene, who was named senior vice president for strategic planning. Clarke had been vice president of finance and strategy for Compaq Sales and Services.

In a prepared statement, Compaq CEO Michael Capellas said Clarke was being promoted because he’d played “an integral role in the development and implementation of our business and financial strategy over the past two years and is an exceedingly strong communicator.”

In his former role, Clarke worked for Peter Blackmore, the executive vice president in charge of Sales and Services. The unit handled all of Compaq’s direct and indirect sales, and it also included the systems integration and consulting business Compaq inherited when it acquired Digital Equipment Corp. in 1998.

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DEC hired Clarke in 1985, and when the company was acquired, he became Compaq’s vice president for technology and corporate development.

As for Greene, he may be more involved with pending mergers and sales of assets by Compaq. An analyst on Wall Street, who asked not to be identified, said it is widely assumed that the PC industry is ripe for consolidation and that Compaq is going to be an acquirer and not a seller.

Greene had been at Kodak before being hired by Compaq last year, and he has described himself as more of a strategist. In his new position, the Wall Street analyst said he may work as Capellas’ right hand as Compaq seeks to makes some deals.

In recent years, Compaq moved toward emulating Dell Computer and emphasized building a larger presence in the direct sales market. Some analysts on Wall Street have speculated that a direct marketer like Gateway would make a good fit for Compaq.

But Clarke told CFO.com that the company is not interested in buying another PC maker. Any deals the company works on will be concentrated on professional services and system integrators focused on key vertical markets, such as manufacturing.

“Our focus will be on professional services firms that can add a particular industry capability,” Clarke said.

But Clarke said last year’s $300 million acquisition of the PC configuration business of Inacom Computers, a financially strapped reseller, was as far as Compaq planned to go in terms of buying its way into the direct sales channel. The business acquired from Inacom ships made-to-order PCs to corporate clients.

Part of the rationale to not make more acquisitions in the PC market is that the PC business, while it contributed $20.7 billion in revenue in 2000, or slightly less than half of Compaq’s $42 billion total, is the least profitable of Compaq’s three business segments.

The company’s other two operating units, Enterprise Services, which includes servers and storage equipment, and Global Services, which does consulting and systems integration for business clients, contributed $3 billion of the $3.5 billion in “segment,” or operating, income Compaq realized last year.

“One of my focuses will be to drive our investments in our key areas of value added,” Clarke said, explaining why the company is looking for deals in its services and server units and not its PC business.

The analyst said Greene may also assume more responsibility for Compaq’s investment assets. Thursday, the company said it would realize a one-time gain of $120 million in the March quarter from the sale of its investment in the RoadRunner Internet cable modem service owned by AOL Time Warner.

Earlier this year, the company had to write down its $1.8 billion investment in CMGI, which it gained when it sold the Internet portal and search engine AltaVista to the Internet incubator company.

Clarke said Compaq has not sold its investment in CMGI, but it did have to mark down the value of the investment in accordance with mark-to- market accounting rules.

The company will continue to make investments, but only “for technology reasons or market access.” Some of Compaq’s investments may be in companies that make products that can be incorporated into Compaq’s own offerings.

At the same time that Compaq announced the shift in its CFO’s office, the company also said it planned to lay off 5,000 employees. In an interview with CNBC on Thursday, Capellas said the company wanted to get its cost base in line. He also said that the computer maker’s business is still strong in overseas markets, while it is down sharply in the U.S.

Clarke told CFO.com the lowering of the cost base includes Thursday’s announcement of the consolidation of the corporate and consumer PC business into one division. A second phase will be the closing of several factories, although he said Compaq employees would be informed of the closings before the information is made public.

“We’re looking to outsource some of our manufacturing,” he said.

Until Thursday, Compaq had been swimming against the tide in the computer business, maintaining that it would be able to match first quarter sales forecasts while Wall Street was cutting its estimates for other hardware makers.

The company blamed the economic weakness for the lowered earnings estimate. Compaq will take a restructuring charge of $125 million to $150 million in the first quarter.

The developments at Compaq come just as the firm is negotiating a transition toward a greater emphasis on server computing and less on desktop PCs. The global PC business is mired in a deep slump after nearly two decades of uninterrupted growth.

But Compaq is also struggling against key rivals in servers. Last week the market research firm International Data Corp. said Compaq was losing share in the server market and had slipped from second place to third behind IBM and Sun Microsystems.

Clarke is Compaq’s fourth CFO in two years. In 1999, Earl Mason resigned when former CEO Eckhard Pfeiffer was fired. Corporate treasurer Ben Wells assumed the job on an interim basis until Greene was hired a year ago.

As CFO Magazine reported in September 1999, before Greene was hired, some of the brokerage analysts who follow Compaq were hoping that the company’s choice of a permanent CFO would help repair the firm’s then-strained reputation with Wall Street.

Greene had been the long-time deputy to Kodak’s former CFO, moving into the spot, also on an interim basis, when Kodak’s CFO Harry Kavetas died in 1999. Before spending six years at Kodak, Greene was at IBM for 23 years, where he served in a range of senior financial posts, including assistant treasurer.

In December 1999, Greene moved out of the Kodak’s CFO spot, when the camera company hired Robert Brust, who had been the CFO at Unisys.