Anytime El. BTW, nothing of consequence in Barron's .
Sure looks like the message is getting across.
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Saturday | January 27, 2001
Compaq will focus on servers
Company to challenge IBM, Sun and EMC
01/27/2001
By Leah Beth Ward / The Dallas Morning News
HOUSTON – Now that Compaq Computer Corp. has restored
profitability to its commercial personal computing business, the Houston
company is training its sights on markets dominated by some venerable
industry leaders: IBM Corp., Sun Microsystems Inc. and EMC Corp.
At an analysts' conference in its hometown, Compaq set out to reassure
Wall Street that the world's No. 1 computer company has completed its
restructuring and is now attacking higher payoff markets such as
industry-standard servers, high-end servers and complex-storage
products. Add software and professional services to that lineup, too, the
company said.
"We've done everything we said we were going to do. The restructuring
is over with," said chairman and chief executive Michael Capellas. "Now
we are going after the hot spots."
Without losing his collegial tone, Mr. Capellas said the company is
chasing Sun in standard servers; using its partnership with database
leader Oracle Corp. to attack IBM in high-end servers; and deploying
old-fashioned price cutting to compete with storage leader EMC, which
is known for its fat profit margins.
Mr. Capellas did not leave one of his personal favorites out of the
company's strategy: handheld devices that deliver Web content, such as
the company's iPaq Pocket PC. Compaq executives believe that the
device market will be bigger than the personal computer market by
2004.
All this from a company that still derives half its revenue from the
personal computer.
"Can we talk about something else?" Mr. Capellas joked with reporters,
after fielding a host of questions about how the company is doing against
its most frequently mentioned competitor, Dell Computer Corp. of
Round Rock, Texas.
"We need PCs, but they are not the exciting growth market," said
Michael Winkler, Compaq's executive vice president for global business
units.
Not all analysts are willing to bet that Compaq can sustain its PC
business while growing in other areas of the information technology
market. Compaq has been shifting its distribution system away from
resellers and toward Dell's direct model for about three years. Dell
makes money on its PCs; Compaq is barely above break-even.
"Half of Compaq's business contributes nothing to the bottom line," said
Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray. "Compaq is
still on the hard road to recovery."
Compaq – post-restructuring – sells about 40 percent of its PCs direct in
the United States. The rest are sold through so-called value-added
resellers, distributors who take a fee. The shift toward a direct model has
helped Compaq reduce its inventory levels from four weeks to two
weeks.
But clearly, servers and storage are on Compaq's mind these days. The
company believes that corporate customers will not cut back on Internet
infrastructure products because doing so would be a competitive
mistake.
"Web infrastructure rollouts will be strong because the brick-and-mortar
companies have no choice but to add storage," Mr. Capellas said,
referring to the vast amounts of data that companies are accumulating
about their customers and the need to put that information to use.
He said Compaq is going after the "underbelly" of the industry-standard
server business of Sun, based in Palo Alto, Calif. It also will engineer and
sell its way into so-called "business critical" servers, for customers whose
businesses must run 24 hours a day, seven days a week, which is
dominated by IBM, of Armonk, N.Y.
In storage, a market that follows servers, Compaq is up against EMC, of
Hopkinton, Mass., which is known for its high-quality and high-priced
products sold by a motivated sales force.
Peter Blackmore, Compaq's executive vice president of sales and
services, said an EMC-type incentive has been offered to Compaq's
sales force in an effort to compete head-on.
Also referring to EMC, Mr. Capellas said, "There are lots of
opportunities to out-price here."
Mr. Capellas conceded that Compaq's consulting and professional
services arm, Compaq Global Services – an outsourcing company that
competes with the likes of Plano-based Electronic Data Systems Corp. –
has a ways to go.
But he noted that the unit recently won some high-profile clients in Blue
Cross Blue Shield, Whirlpool Corp. and DirecTV from Hughes
Electronics Corp.
If it sounds strange to think of Compaq Global Services, with $7 million
in sales, competing with EDS, which has about $28 billion in sales, Mr.
Capellas said, he wants people to get used to it.
"We are absolutely committed to outsourcing," he said.
Separately on Friday, Compaq named Sanford Litvack, a former vice
chairman of The Walt Disney Co., to its board of directors.
Compaq shares rose 10 cents Friday to $22.50 on the New York Stock
Exchange. |
