"Compaq Phasing Out Its Alpha Line, Deepening Cuts":
dailynews.yahoo.com
By Eric Auchard
NEW YORK (Reuters) - Compaq Computer Corp. (NYSE:CPQ -
news) said it plans to phase out its own line of computer chips in favor
of microprocessors made by No. 1 chip maker Intel Corp.
(NasdaqNM:INTC - news), as well as deepen cost cuts, in moves to
speed its shift from a hardware company to a business services
company.
Compaq, which lost its lead in the personal computer market to Dell
Computer Corp. (NasdaqNM:DELL - news) this year, said on
Monday it agreed to use Intel's Itanium chips in its high-powered
computers, also known as servers, in a transition to be completed by
2004.
Compaq will transfer to Intel hundreds of employees and other
resources related to its own chip technology, known as Alpha. In the
mid-1990s, Alpha was considered a pioneering microprocessor,
developed by Compaq's Digital Equipment Corp unit, but its challenge
to Intel was largely ineffective.
``This is meant to be one microprocessor architecture under our entire
server line,'' Capellas said at a press conference.
By adopting a chip that other companies will use also, Compaq is
betting that it can make and support systems that best use the chip's
power rather than microchips.
``It puts more of a burden on Compaq toward being a complete
systems company and building up a lot of their services and other things
to help differentiate them,'' said J.P. Morgan Chase analyst Walter
Winnitzki.
Also, in a memo to staff dated June 12, Compaq Chairman Michael
Capellas said the company would aim to cut $200 million in costs
every quarter starting in the first quarter, totaling $800 million for the
year. In its earnings report for the first-quarter, ended March 31,
Compaq said it planned to reduce structural costs $500 million to $600
million annually.
``Reducing structural costs is absolutely necessary in order for us to
price competitively and improve profitability,'' the memo said.
The memo spelled out an approach that includes a greater focus on
services and software, not unlike International Business Machines
Corp. (NYSE:IBM - news) and Hewlett-Packard Co.(NYSE:HWP -
news).
IBM has said it has sidestepped the brunt of the technology slowdown
in part because of the strength of its large services business and its exit
from consumer retail sales of personal computers over a year ago.
HP has said it is gunning for IBM's services market and supports Intel's
Itanium in the belief that it can get a better return for investments into
systems and their management rather than for a chip that runs the
systems.
``We're actually very positive about Compaq's announcement,'' said
Mark Hudson, worldwide marketing manager for business systems at
Hewlett-Packard. ``It makes the place of setting yourself apart higher
up in the food chain... it means, the services, it means the support.''
In the memo, Compaq indicated it has allocated $500 million to
acquire services companies to expand that part of its business.
``In the United States, we will focus on acquiring a services company
with core strengths in our targeted vertical markets,'' Capellas said in
the note.
``In countries where we have strong high-end share but no critical mass
in services, we will look for opportunities to acquire enterprise services
companies.'' |
