Last Updated: May 31, 2000
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One of five winning entries by John Keller of The Wall Street Journal
that won the Jesse Laventhol prize for deadline reporting by an individual
in 1998.
October 21, 1997
NEW YORK - C. Michael Armstrong, who helped build IBM's overseas business
before transforming Hughes Electronics Corp., stepped up to the biggest
challenge of his career yesterday: restoring fading AT&T Corp. to its
former glory.
AT&T's board, as expected, tapped the Hughes chief executive to
be its new chairman and chief executive officer, succeeding Robert E. Allen,
who will step down in 11 days. TD An outgoing, high-powered sales executive
who spent 31 years at International Business Machines Corp. before going
to Hughes in 1992, Mr. Armstrong must improve AT&T's competitiveness,
overhaul its culture, and push the company to new heights in the tumultuous
trillion-dollar telecommunications world. If he fails, AT&T could fall
far behind slicker, well-financed rivals.
AT&T packaged the announcement of its new CEO with the disclosure
that it plans to sell its once-stellar Universal Card credit-card business
and a customer-service unit. AT&T also posted third-quarter earnings
that fell 15% from a year ago but managed to beat analysts' expectations.
Mr. Armstrong, 59 years old, will have to share power with a strong
No. 2 who was his chief rival for the top job: Vice Chairman John D. Zeglis,
an AT&T veteran. Mr. Zeglis was named president yesterday, but the
company held open the post of chief operating officer. And while some people
close to the situation said Mr. Zeglis had been tacitly assured he would
succeed Mr. Armstrong, the new AT&T chief made it clear he isn't a
mere caretaker in the top job and that no promises were made.
"There's been no discussion at all on that," Mr. Armstrong said in an
interview following a packed news conference held to announce his appointment.
"I don't think the board brought me in to govern-the board brought me in
to lead." Mr. Zeglis praised his new boss as "the best operator in the
world."
AT&T's brass took pains yesterday to present Mr. Armstrong's selection
as a smooth transition of power, creating "the new team to lead AT&T
into the next millennium." There were smiles all around, and flashbulbs
popped furiously as Mr. Armstrong was introduced. But the tension in the
hastily arranged New York news conference was extreme.
The new CEO grinned broadly, in stark counterpoint to the somber Mr.
Allen, 62, who is leaving AT&T after 40 years, the past nine of them
as CEO. The boyish-looking Mr. Zeglis, 50, sat to Mr. Armstrong's left,
arms crossed, with a tense smile.
Investors, apparently endorsing the Armstrong-Zeglis team, drove up
AT&T's stock price 5.1% in heavy trading. AT&T closed at $47.50
a share, up $2.3125, in composite trading on the New York Stock Exchange.
"This is a great decision for the company," said Craig O. McCaw, who is
said to be AT&T's largest individual shareholder with more than $1
billion in AT&T stock. "Mike Armstrong is an outstanding leader who
understands technology, and John Zeglis knows the company and its challenges
intimately."
Mr. Allen had passed on the chance to hire Mr. Armstrong as his successor
a year ago, instead picking John R. Walter, who served eight months and
left abruptly in July. This time around, Mr. Allen again opposed hiring
Mr. Armstrong, instead endorsing his lieutenant, Mr. Zeglis. Yesterday,
Mr. Allen, making possibly his last public appearance as AT&T's chairman,
put all that aside.
"Some will ask, 'Haven't we seen this movie before? Why didn't we do
this a year ago,' " Mr. Allen said at the news conference. "That was then,
this is now." He told the crowd he supports the naming of Mr. Armstrong
without "a shadow of doubt in my mind." The departing AT&T chairman
will become chairman of the board's executive committee, in a largely titular
role he will hold until February 1998, when he retires. Staying on the
board beyond that, Mr. Allen said, would have been "potentially inhibiting
to the new CEO."
Mr. Armstrong, spreading around some of the praise, also told reporters
it was his idea to have Mr. Zeglis named president. "It was on Mike's recommendation
that the board elected John Zeglis president," seconded AT&T board
member Walter Elisha, who was chairman of the search committee.
At AT&T, Mr. Armstrong will need to attack strategic problems from
Nov. 1, when he starts his job. As AT&T in the past year tried to articulate
a strategy and find a new leader, its rivals moved quickly to form massive
business combinations that aim to attack AT&T on four fronts: longdistance,
local and wireless phone services, and the Internet.
AT&T is a distant third in Internet access after America Online
Inc. and Microsoft Corp. And the five big Bell companies are girding to
challenge AT&T in the residential long-distance market, AT&T's
core business. Mr. Armstrong acknowledged the challenges but said it is
too early to talk in specifics. "I haven't even walked in the door," he
said.
Chances are the Harley-riding Mr. Armstrong has already sized up AT&T's
situation and its senior managers. He entered Hughes as CEO right out of
IBM, after learning that he wouldn't rise to CEO of Big Blue. Before taking
command of the General Motors Corp. unit, he did a detailed analysis of
his senior team. In short order, he fired managers who didn't make their
numbers, gave Hughes a strong marketing plan for selling TV services to
consumers, and laid plans to sell Hughes's giant defense business to Raytheon
Corp.
Separately, AT&T's third-quarter net income dropped 15% to $1.22
billion, or 75 cents a share, from $1.43 billion, or 89 cents a share,
a year earlier. Net income included a four-cent gain from the sale of the
company's submarine-systems business. Revenue increased 1.1% to $13.38
billion from $13.23 billion.
Chief Financial Officer Dan Somers noted that net income from continuing
operations of 71 cents a share actually beat analysts' consensus estimates
of 65 to 66 cents because of slightly less spending than expected and other
cost controls. He said he expects the same performance in the fourth quarter
of 71 cents a share.
Long-distance revenue fell less than 1% to $11.7 billion in the quarter.
The biggest decline was in the consumer market, where revenue fell 2.4%
to $6.08 billion. Business-services revenue gained 1.9% to $5.62 billion.
Revenue from wireless services hit $1.1 billion, a 10% increase.
