Patrick, Bill -
Here's what I have been watching with CPQ - the enterprise group, which owns the whole of the troubled DEC and Tandem acquisitions, in 3Q99 (which was the first time the numbers were reported by product group) showed $599M net profit on $4.9B in revenue, operating income was up 87% year over year. And there is IMO still much to be gained from further cost cutting, and the 1H00 launch of several significant high end products such as the Alpha "Wildfire" which competes with SUN's UE10000 high end product. Likewise the end to end internet backbone architecture has just started to get attention.
Compare the financials to DELL's last quarter - the CPQ enterprise group actually showed better net profit on a percentage basis and in absolute terms. And I think we can agree that DELL represents the gold standard in terms of efficient operation and sound financial management.
Does this really sound like a sick company on the brink of disaster to you??
Likewise, the numbers for CPQ's consumer division were not too shabby, although not in the same league as the enterprise business. The most recent data on the consumer market gives CPQ 35% market share. Only the commercial PC business looks weak...
As Bill said - "If you get your lunch eaten- why just change missions" - which is what I see CPQ doing in the commercial PC space. They will continue to talk about maintaining their commercial PC presence, and they will actually take steps to be more competitive (and profitable) there, but I expect continued decrease in emphasis on that part of CPQ's business until it is perhaps 15% of their overall revenue.
As to Patrick's comments about who will pull the plug - CPQ has already pulled the plug on IBM's consumer business, and most observers see CPQ getting most of the business IBM left on the table. Consumer group saw more than 50% growth in both unit volume and operating income year over year, hardly an example of a company being trounced by competitors, just the opposite.
Notice that in all of this analysis I have taken out CPQ's commercial PC business, where all of the comments you have made apply. CPQ's commercial PC business is not competitive from a cost standpoint, is losing share and money, showed negative growth... Pfeiffer had a "macho" need to try and compete with DELL in that space and IMO, CPQ was completely outclassed in that battle. But they don't need to beat DELL where DELL is strong - they just need to beat IBM, HP and the other channel-based commercial suppliers, and get to a profitable cost model. The key here for CPQ is to accept the notion that DELL becoming the #1 commercial PC vendor is not the end of the world for CPQ. SUNW does just fine with NO PC business... |
