(COMTEX) B: Compaq Computer Prepares 'Edgy' Ad Campaign, New Products
B: Compaq Computer Prepares 'Edgy' Ad Campaign, New Products
Apr. 27 (The Dallas Morning News/KRTBN)--In February, six months into his job as
chief executive of Compaq Computer Corp., Michael Capellas told Wall Street that
he was bold but not stupid.
He suggested that analysts lower their growth expectations for the company.
It's an old saw in CEO circles that you never promise too much. But lowering
expectations as Mr. Capellas did was a sharp change in direction for the Compaq
of just a few years earlier.
At the height of Compaq's success in 1995 and 1996, national business magazines
dubbed it "King Compaq" and pronounced its future so bright "the CEO has to wear
shades."
As it happened, though, Compaq lost its royal footing, not to mention its day in
the sun. In April last year, the company warned that quarterly profits would be
less than half of what Wall Street expected. Then-chief executive Eckhard
Pfeiffer was out. By September, Mr. Capellas was in.
Shareholders will get their first update Thursday from Mr. Capellas at the
Houston company's annual meeting. Expectations have improved. But Mr. Capellas
is expected to keep the same cautious but upbeat tone that has characterized his
sessions with Wall Street analysts to date.
"There's a different step at Compaq. We're picking up the pace," Mr. Capellas
told analysts Tuesday during a conference call on first-quarter earnings.
He promised that the pace would quicken within a week when Compaq announces a
major advertising campaign intended to drive the power of its brand. Ads on
television, in print and on the Web "will tell the story of who we are," said
Mr. Capellas.
"And you can expect us to be a little edgy."
Over the past year, Compaq has battled some negative industry trends
while trying to fix its own problems.
The first quarter has never been a strong one for the company or the industry.
This year was no exception and was made worse by a Y2K-induced slowdown in
corporate spending on information technology. Compaq posted results that were
flat year-to-year but in line with expectations.
Some analysts say Compaq has nowhere to go but up. "We think the year ahead
should be great with the [first] quarter a problem but also the bottom," said
Daniel T. Niles of Robertson Stephens.
Mr. Niles said Compaq stands to benefit from corporate upgrades around Windows
2000 and its dominant 31 percent position in the global server market.
Next month, Compaq introduces its Wildfire high-end servers, which International
Data Corp., the technology research firm, has described as a powerful platform
for Internet service providers (ISPs) and application service providers (ASPs).
"This will make Compaq more competitive with IBM, Sun and Hewlett-Packard server
offerings," IDC analysts said in a recent report.
Compaq has set a target of $1 billion in revenue for the year from Wildfire.
Lackluster shipments of personal computers to corporate customers has dogged
Compaq's turnaround effort. Mr. Capellas, who declined through a spokesman to be
interviewed, told analysts that losses in the segment narrowed by 75 percent in
the first quarter. Investors are looking to Compaq's purchase last year of
Inacom Corp., a distributor, to help boost the segment.
Renamed Custom Edge, Inacom is intended to move Compaq away from its expensive
indirect sales model, enabling it to better compete with such direct sellers as
Dell Computer Corp. Dell used its more efficient strategy to edge out Compaq
last year as the nation's top personal computer maker.
Mike Winkler, head of the business PC division, said Compaq is on target to move
60 percent of its business to Custom Edge by the end of the year, up from 15
percent at present.
Compaq may have lost its bragging rights as the top U.S. computer maker, but Mr.
Capellas said in the conference call that the race is hardly over, pointing to
healthy 35 percent first-quarter revenue growth in the consumer group.
He said it would be unfair to explain away Compaq's results on the exit of
Packard Bell NEC Inc. and International Business Machines Corp. from the
consumer retail market last year. "To say that sells us short," he said.
Ashok Kumar of U.S. Bancorp Piper Jaffray said while Compaq has posted healthy
growth in the consumer market, "It has recently lost ground to Hewlett-Packard."
Mr. Capellas thinks Compaq can dominate the consumer market by seizing on what
he calls the public's "insatiable appetite" for Internet access. He said the
company wants to be the world leader in Internet devices through its "Everything
to the Internet" strategy.
Last week, the company introduced its iPAQ Pocket as a competitor to the popular
Palm organizer. "This is a good example of what I mean by 'cool,'" Mr. Capellas
said.
While some analysts are skeptical that iPAQ can be as "cool" as the Palm, many
were persuaded after the first-quarter earnings conference call to upgrade their
rating on the stock. Analyst Steve Fortuna at Merrill Lynch raised his view to
"accumulate" from "neutral." Richard Gardner at Salomon Smith Barney said
"Compaq has turned the corner," and changed his rating to "buy" from "neutral."
Mr. Kumar also climbed on board with an "aggressive buy."
By Leah Beth Ward
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