January 31, 2001
Capellas Says Compaq Is Ready
To Take On IBM, Fujitsu Siemens
By DAVID PRINGLE
Staff Reporter of THE WALL STREET JOURNAL
Michael Capellas is fast turning Compaq Computer Corp., the world's
biggest personal-computer maker, into a broad supplier of Internet access
technology, but he can't afford to take his foot off the accelerator. Last
week, Houston-based Compaq cut its revenue forecasts for 2001 citing
the unexpectedly sharp slowdown in the desktop PC market. Since he
became chief executive in the summer of 1999, the effervescent Mr.
Capellas has made Compaq less reliant on desktop PCs, but the
slowdown is prompting rivals, including Europe's Fujitsu Siemens
Computers -- a joint venture between Siemens AG of Germany and
Fujitsu Ltd. of Japan, to also step up their efforts to sell servers, portable
computers and other digital devices.
But Mr. Capellas claims Compaq has a significant
head start. To make the point, he used the
high-profile annual meeting of the World Economic
Forum in Davos this week to showcase Compaq's
broad range of wireless technology. Compaq's
technicians installed a high-speed wireless network
and scores of servers in the Swiss ski resort's
Congress Center and handed out free hand-held
computers to the 2,200 delegates, allowing them to
zip each other messages and download video clips
of the conference sessions.
The project was the biggest of its kind yet and was something of a gamble,
but it appears to have largely paid off. Although the network suffered
several technical glitches, delegates seemed to have been impressed with
the technology. Fresh from a grilling from Wall Street, Mr. Capellas
arrived in Davos Monday, where he spoke with David Pringle of The Wall
Street Journal Europe. He explained how Compaq is challenging
International Business Machines Inc. in the high-margin business-services
market, while taking on the Japanese consumer electronics giants in the
market for digital entertainment devices. But Mr. Capellas is shying away
from a head-to-head battle with the mobile phone industry. Here is an
extract from the interview.
Q: Dell Computer Corp. claims to be catching you in the server
market. How are you going to fend off Dell and others?
A: As the low end (of the server market) starts to commoditize, you have
got to be able to take performance and scale higher and higher. So we will
continue to move the bar higher at the high end. So, I think you have to
differentiate when you look at market share numbers and say what part of
the market you want to be in.
As you look at the portfolio of products we have, we line up on IBM. We
are the only two companies in the business that actually have a highly
extensive services organization. Of course H-P (Hewlett Packard Co.) is
building one as well. We have 40,000 service engineers. So, we want
really innovative products, but we also want really innovative solutions.
Q: When do you expect hand-held computers to be a really significant
business for Compaq?
A: The hand-held will start to be significant in terms of revenue in the next
two to three months. If you take a Pocket PC (hand-held computer) fully
loaded with a wireless (connection) you are starting to push on the same
price as a fully loaded desktop. This will be a serious margin contributor.
The margins on the Pocket PC are very good because the cost of
manufacturing is so low -- you are not going through all the complexities of
the traditional configure-to-order models.
Q: You are planning to launch a hand-held
computer with a built-in phone. Are you
going to be competing head-on with the
mobile phone makers?
A: This is the great unfought war. There is no question we are converging
on the same space. How that sorts out in terms of partnerships and
competition in this crazy world we live in (I don't know). We are (already)
a huge provider of the infrastructure to mobile phone operators. Now the
relationship gets more interesting.
But I think it makes more sense to go into partnerships. In this day and age
you need to be smart enough to know what you do well and want you
don't. We have done some interesting partnerships with (Telefon AB
L.M.) Ericsson and I think you will see us probably looking to form more
joint marketing.
Do the telcos buy the computer companies? Do the computer companies
buy the telcos? Remember only last year we thought the Internet start-ups
were going to buy us both and that didn't happen. It is all about how the
middle ground is formed.
Q: Do you see Compaq in the long-term as a mobile phone company?
A: No, I really do see us being in the Internet access business. You are
going to see much more sophisticated user interfaces -- we will do video,
we will do video peer to peer (the exchange of video clips between
consumers) and we will certainly do audio, music and voice-recognition
commands.
Because the content delivery will be so massive, you will have to have
intelligence on the device for these next generation interfaces. I think the
part that a lot of people miss, when they think about the future of
computing, is just how much capacity it is going to take to drive these very
sophisticated user interfaces.
Q: Do you see yourself competing with consumer electronics
companies or forming partnerships?
A: We will compete. Here is a (Compaq) MP3 player, but our skill isn't
just in building the device, If you have a one-touch connection with your
PC then you manage the music on a PC that connects to the Internet. The
question is: Is a consumer electronics company better able to take the
device and do the interaction, the computation, the network and the data
or is it easier for us to make the device with the knowledge to build
through the rest of the stream? We will compete more and more with the
classical consumer electronics companies.
Q: Do you plan to compete in the set-top box (digital television
decoder) market?
A: There is going to be a gateway into the home and there will be a
wireless home network that will have computers. We are in the wireless
LAN (local area network) business and we are in the wireless home
business. We will be in the business of connecting the wireless device out
to an extranet and we are in the business of building firewalls to protect
your home for security reasons. So maybe we are in that business, but
maybe a set-top box is not our definition of what the market is.
Q: Do you see the recent slowdown in the PC market as a catalyst for
further consolidation in the industry?
A: It depends what business you are in. IBM, Compaq and
Hewlett-Packard have substantial computational platforms, which they
extend into the Internet access business. I think that just making PCs is
going to be a very tough play. But there won't be a slowdown in the
number of people who want to access the Internet, there won't be a
slowdown in the volume of content, there won't be a slowdown in the
richness of content.
Q: How optimistic are you about consumer demand for technology
over the next year or so?
A: I think there is no question that the enterprise and the infrastructure
rollout is where the growth is in the first half of the year. On the consumer
side the fundamentals that led to the decline was simply a lack of
confidence because it went too fast to be anything else.
There are three things that are really going to make a jump on the
consumer side. The first one is music and video stream to the home. For
that to happen we need broadband to be rolled out and broadband is
being rolled out, perhaps not as fast as we hoped. The second thing we
need is content providers that can do the distribution and that is already
filled with Disney, AOL etc. The third thing is you need to be able to
present the technology with very high-performance, which means stereo
speakers and high-resolution graphics processors.
The delivery of the next generation of content, rich graphics, interactive
screens, interactive gaming, music, video, peer-to-peer, interactive video
conferencing -- that is what is going to drive the next big kick and that will
happen.
Q: In Europe, especially, it seems that consumers aren't really aware
of these possibilities.
A: I think Europe is taking a breather while it figures out what form of
Internet access it wants. Will it be cellular phones, will it be the PC or the
handheld? I do think that there is a little more pause for thought than there
was in the United States.
Write to David Pringle at david.pringle@wsj.com |
