From today's Street.com...
Hardware & PCs: As AltaVista Deal Looms, It's Still the Same Old Same
Old at Compaq
By Eric Moskowitz
Senior Writer
Compaq (CPQ:NYSE) executives must be inclined to remain seated in a
theater when someone shouts fire. As other PC makers scramble to stake
out territory in the Internet economy, Compaq appears ready to
surrender its own hyped Web strategy.
Unless Compaq Chairman Ben Rosen has a change of heart, the CEO Compaq
is seeking won't have the search engine AltaVista at his or her
disposal. The planned sale of AltaVista to CMGI (CMGI:Nasdaq) --
currently in preliminary negotiations, according to Compaq -- will
close in the next week, according to a source familiar with the
situation.
Employees at AltaVista are hopeful about a move to CMGI, says the
source, because they consider CMGI an ideal breeding ground for a
future IPO. AltaVista CEO Rod Schrock will likely retain his role
because he and CMGI CEO David Wetherell are "old friends," notes the
source, who spoke on the condition of anonymity.
For Compaq, such a move would make the world's leading hardware maker
.. the world's leading hardware maker. So much for a monumental
transformation for the company. And is selling hardware enough to
appease investors looking for change? The early consensus is no.
"I'm not a shareholder anymore and I feel real happy about that," says
John Mannino, an individual investor who just sold his Compaq shares
and moved into Dell (DELL:Nasdaq) instead. "Compaq's in turmoil and I
don't have time for it anymore."
Compaq's decision is all the odder because the company recently vowed
to embark on an Internet-based strategy that would seek to combine the
reach of the world's leading PC maker into an Internet portal player on
par with a Lycos (LCOS:Nasdaq) or Excite, now a part of Excite@Home
(ATHM:Nasdaq). AltaVista, really the only valuable piece of the $9.6
billion pie Compaq acquired in its buy of Digital Equipment last year,
was going to be its trump card.
But it seems as if Compaq realized the cost would be too great to push
Altavista into that top tier of portal sites. The most compelling
rationale for a change in Compaq's Internet strategy is its
management's realization of the significant investments required during
the next two years for AltaVista to compete effectively with
well-entrenched competitors like Yahoo! (YHOO:Nasdaq), Salomon Smith
Barney analyst Richard Gardner said in a Thursday note to clients.
Gardner rates Compaq neutral and his firm has done no Compaq
underwriting.
This latest shakeup has left Rosen in charge of a company with low
morale and a stock price in desperate need of a push. The PC maker's
last hope of an Internet strategy, it seems, will be extinguished. "We
thought we were going to show Dell a thing or two about the Internet,"
laments one Compaq executive who requested anonymity.
Compaq's Eckhard Pfeiffer was intent on beating intrastate rival Dell
at its own game, says the executive. A Compaq spokesman said the
company doesn't discuss rumors or speculation, and the Compaq-CMGI
rumors are certainly both at this point. But what about this apparent
change of thinking this year? "It's just speculation," reiterated the
spokesman.
Now, Compaq's apparent about-face has investors wondering where the
company's going next. "I'm hearing their quarterly quotas aren't even
close to being achieved by the end of the month," when Compaq's second
quarter ends, brags a top executive at a competing company who
requested anonymity. Certain people have been bragging that stealing
Compaq clients is like "shooting ducks in a barrel," added the
executive.
Compaq had a chance to reassure jittery customers at PC Expo, a
three-day tribute to the PC industry and its indirect channel that
ended Thursday. In years past, Compaq hyped the event with full-page
ads in all the major print publications. But this year, Rosen's fiscal
constraints have kept his company out of the limelight.
"The company's keeping its low-margin products and throwing out the one
asset that gave them credibility," said one PC Expo visitor to Compaq's
booth, a CEO at a company that does business with the PC maker.
"Strategically it's a disaster."
Mannino, the individual investor who switched to Dell, went one step
further: "Compaq has just thrown its credibility out the window." While
Michael Dell projects a vision for his company, says Mannino, Compaq's
whole Internet marketing plan just fell apart.
At least there may be end in sight to Rosen's tumultuous term as acting
CEO: Compaq is likely to conclude its search for a new chief executive
by the end of this week, according to another source familiar with the
Compaq situation.
John Clifford, a managing director at Boston-based broker/dealer
Kimball & Cross, seems to have the right kind of attitude for a Compaq
investor at this point. Last week's second-quarter warning from Compaq
didn't budge its stock. "I knew there couldn't be any other bad news
left that could send this stock lower," says Clifford.
With the way Compaq is executing this year, don't be so sure. |
