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Technology Stocks : Compaq
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To: Kai-Uwe who wrote (5987)9/25/1997 4:48:00 PM
From: Tim Bagwell   of 97611
 
My main point regarding the new HP factory was not that the labor in Europe is cheap. I was only trying to defend my position that it isn't that high either. My main point was that HP is adding capacity. New factories (anywhere) are necessary to move ahead and this committment to invest is an important signal to WS. Especially for HP which is known for being conservative with the checkbook. IMHO, an investment in a new plant is a major committment by HP and that is what I look at first. Apparently, WS agrees.

Now, given that you have to add capacity where do you put it? Since Steve points out that labor cost isn't the issue you could put the plant anywhere. So putting the plant in Europe solves the EEC issue and makes perfect sense especially if there is a tax break to boot. HP isn't trying to be the pioneer here. They are trying to win market share and this plant is a step in the right direction.

It's just a hunch but I would suspect the reason HP exited the FRG market was based on profit margin. FRG may be the most expensive place to do business in Europe and maybe they decided there were more fertile fields to plow. I'm sure HP could have put this plant anywhere they wanted in Europe.

So what we are saying is that HP is adding capacity in the most economical way possible. It only bolsters my bullish opinion for HP.

As for IBM, it is strange how everyone seems to ignore them. I've wondered about this myself. Big blue is just not taken seriously by the market. It's clear that HP is banking on outgrowing IBM for market share in the future. Personally, I have never considered IBM as a major stumbling block for HP. BTW, HP recently announced an alliance with Mitsubishi and we sell AMD.

Regards,

Tim
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