Great Article - Part 2
by: brazil1988
9/19/00 5:48 pm
Msg: 183353 of 183362
If only it had worked out that way. The fact is, Compaq already
had its hands full integrating Tandem, and DEC tripled its
employee base. Not only that, there were product lines to be
integrated and facilities to be consolidated. All this took longer
and cost more than anticipated. To make matters worse,
Compaq's commercial PC business faltered, posting an
operating loss of over $400 million in 1999. The stock bottomed
shortly before year-end at about $19.
Capellas, 45, left Oracle Systems to join Compaq in August
1998 as chief information officer, and within a year he was
named CEO. He immediately reorganized the company under
four major business groups -- Enterprise Solutions, Consumer,
Commercial Personal Computing and Global Services. To lower
costs and increase direct sales, Capellas consolidated
Compaq's distributors from over 30 to just four. Its commercial
PC business, one-third of company sales, returned to profitability
one quarter ahead of Capellas's target. The company is now
selling 25 percent of its PCs directly and is headed for 40
percent by year-end.
Although the stock has moved back up to $31.50, it's still 37
percent below its old high. "If you had a checklist for what new
management set out to achieve, there are a lot of checks in the
win column, yet the stock has been flat for the past six to nine
months," says Kevin Rendino, manager of the Merrill Lynch
Basic Value fund, which owns about $200 million worth of
Compaq. "The stock should be $38, just based upon what
they've done already."
To get the stock higher, Capellas is pushing hard for revenue
growth. "We expect to deliver strong, double- digit growth during
the second half of the year 2000," he told analysts during the
recent conference call. Walter Winnitzki, PC analyst at
Chase/H&Q, upgraded the stock to a buy after the
second-quarter earnings came in at 21 cents a share, compared
with a loss of 10 cents last year. "Now that they have stabilized
their financial problems, the company is positioned to accelerate
its growth rate," he says. "That is not yet recognized by the
market and will come together in the September quarter."
New products -- like the iPaq, a commercial PC introduced last
November -- are key. But even more important for growth is
Compaq's success in Internet infrastructure, where Capellas has
focused Compaq's enterprise-related businesses, which
represent 55 percent of sales. In at least one part of this market,
Compaq is the unrivaled leader. Its ProLiant line dominates the
industry-standard server market with a 35 percent share, more
than the next two competitors combined.
And then there's storage, one of the fastest-growing tech
segments. "The market opportunity is huge," says Kunstler. As
more data is converted to digital form for use over the Net,
businesses need more capacity to manage and store the data.
Compaq, already a leader in this area, has added 30 percent
more storage sales specialists this year to push its highly
regarded StorageWorks product.
According to Merrill's Rendino, all this puts "the wind at their
backs in the second half of the year. If they achieve the
double-digit revenue growth in the September quarter, I think the
stock's a double."
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