Pfeiffer calls the tune

Compaq CEO Eckhard Pfeiffer knows how to make the market sing and keepahead of the opposition. Tim Phillips takes note.

No one ever died at Eckhard Pfeiffer's lunch table because their sides had split. Unlike his business foes, notably Sun's CEO, he doesn't make jokes. Even more disturbing, Pfeiffer doesn't make fun of Bill Gates or endorse the idea of the Internet computer. The man who dared complain about Intel is now probably the archetypal Wintel PC supplier.

So when Pfeiffer talks about Compaq - now a $15 billion company and confirmed as the number one PC shipper world-wide - 'outgrowing' the PC market, you know he's not going to launch a set-top box or a games console. With Compaq, you get the feeling that taking a long lunch break is the limit of nonconformity.

The dourness of the German's delivery has its compensations though; Compaq's CEO doesn't mince words or avoid questions. Ask him what he thinks of the opposition and he will tell you. 'The arrangement between Zenith and Packard Bell is a money-losing venture, either separately or joined together. AST is not in good shape. Analysts believe that HP is not making money in PCs, and it is trying to buy market share,' he says bluntly about some of the PC market share gainers last year.

In Europe, Siemens has also gained substantially - but is is are not a world player, Pfeiffer adds. If he sees a threat to Compaq as number one PC supplier, it is more likely to be from a broad-based computer company buying its way into the market using profits from another part of the business.

'Price alone does not do it unless it is a very substantial difference, but we are vulnerable because we do not live in a totally controlled world. We know plenty of companies that use one part of their business to fund another part, but our hope is to do most, if not all, of the important things right in our area and hope that is enough,' he says.

Compaq has already had experience of the power of bigger vendors. 'Fujitsu is one case. In Japan, market conditions meant that no one could compete on the desktop with NEC, because NEC manufactured a non-standard computer for the Japanese market.

'It was IBM and Compaq that turned round the industry standard. Fujitsu was late into the game when it realised the impact the PC market would have, but it has used its dominance of the mainframe market to good effect in building up its market share.'

Compaq has to keep working at driving down costs, and that means the cost of manufacturing. Although credited with having one of the most efficient manufacturing organisations in the business, Compaq aims to make a build-to-order operation a reality by the fourth quarter of this year.

'The big improvement is still ahead of us,' Pfeiffer claims. 'As a product goes off the shelf, we need to know about it. It means integrating your inventory system with that of the vendors. What we can tell dealers now is that we have a five-day response time for products, but that has to change.' As a European, Pfeiffer knows the complexities of shipping PCs internationally - which he considers an advantage over his US-centred competitors. 'The number of units we have to store goes into the thousands. That is because we have multiple models for a number of different countries in Europe,' he explains. It's a subject that Pfeiffer, a man who relishes detail, enjoys.

'The inventory cost is still significant. It is not quantifiable, but we are talking hundreds of millions of dollars. Because these logistics costs are a huge factor, and whoever does it best has a huge advantage.

'Shipping a box around the world can easily add between $50 and $100. That is why cutting inventories worldwide is absolutely fundamental. We have to manage product transitions well - a product transition can make or break a quarter for us, so we need to get the manufacturing and planning disciplines right. We have to redefine and re-engineer the manufacturing process.' To realise Pfeiffer's dream build-to-order service, Compaq is planning to run its business on SAP's R/3 product, the BPR software of choice for manufacturers everywhere. And it is going to run R/3 on NT on an Intel platform. The lugubrious Herr Pfeiffer has a distinct downer on Unix and Risc.

'Unix has been the topic of discussion for the last 15 years, and there have been several major moves to unify it which have not materialised because the Unix owners all have their own strategy. That is why Unix is losing to NT, because NT is a one-vendor operating system,' he says. He floats the idea that Microsoft may be able to succeed where IBM failed and create an attractive one-vendor-supplies-all enterprise package. Pfeiffer believes that Unix's moment has passed.

'Novell has failed, but SCO is a creditable, established provider, although it is tied by its linkage to HP. Sun and IBM are not part of this new initiative, so we will end up with five, six or even seven Unixes.'

In Pfeiffer's opinion, this condemns Unix in the future to niche uses, and one which Sun has exploited to good effect is the Internet server. It is no surprise to see Compaq launching its own Internet server, but one that uses NT rather than Unix. This is to fit the aspirations of business users, Pfeiffer claims - and to get the price-performance they expect.

'Companies will want to standardise. So far they have been buying Sun's servers, but the Sun server is an alien in the corporate environment. We are fighting against these Risc Unix companies with x86 and NT.' So the man who once railed against Intel is certainly preaching that he has Intel on his side. Although he promises to keep an open mind when sourcing x86-compatible chips, there will not be any Risc hardware from Compaq - and significantly, no Power PC.

'Power PC has missed its opportunity. Apple lived up to its agreements, IBM did not, because it was not properly focused. The chip was certainly powerful, and it would have required a strong alliance among prospective hardware vendors. That did not happen, and it torpedoed the project.' Remember that other great alternative initiative - the ACE consortium - which Compaq helped to front and which went rapidly to ruin? Compaq is showing little appetite for rocking the boat again. It will spread into other products, but not into anything radical. And no Macintosh clone. 'Apple had a good product with Power PC running the Mac OS, but the overall market strategy for Power PC has not been consistent,' he explains, adding that the Mac OS is not attractive to license. 'It is kind of open - open to small players.' Pfeiffer reserves special scorn for the Internet PC. Compaq is credited with starting one revolution when it launched its lower-cost PCs, but Pfeiffer doesn't think that the rising price of PCs - which according to Dataquest rose on average from $2,304 to $2,378 last year - guarantees the success of a Net PC.

'There is a worldwide requirement for a price point of about $1,000, but you tell people that they are required to take a reduced functionality and they don't want the product,' he says. But if a Net computer becomes a reality, he admits: 'We have products underway in all our divisions.'

Compaq will not be leading the way though, because it has no idea what the market wants. But neither do Sun or Oracle, says Pfeiffer. 'You cannot just put hardware together and hope. There's more promise than reality in Oracle's first attempt, and that made the launch a disappointment, in spite of all the excitement. We believe that this product still requires a lot of market research. It is not going to be another Christmas tree for resellers in 1996.' More likely Compaq will use its skills in designing notebook computers to develop a hybrid communications and notebook device, but not until the technology settles. As much as three years ago, Compaq was planning its 'mobile companion' - an idea that never got beyond the drawing board. Now, Pfeiffer adds, the PDA market has been soured by the relative failure of the Newton.

If Compaq is to keep growing it is by doing more of the same, but cheaper and more efficiently, and by exploiting the strength of its long-time partners. With 40 per cent revenue growth last year, Compaq is a bigger computer company than Digital, Apple or Hitachi, perhaps thanks to the fact that it simply does the basics better than anyone else.