Jules,
From the Compaq P.R.:
<Compaq said the deal will fill in the missing gaps in its announced quest to become one of the world's top three computer makers.
``It's a one-stop-shopping, total-enterprise solution,'' Compaq President Eckhard Pfeiffer said in an interview. ``We need to cover the entire spectrum -- software, services and support. That is the road map to being one of the top three global computer companies.''
Pfeiffer said the combination will increase the company's total potential market to $650 billion from $200 billion.
He also said the deal will double Compaq's current sales force with Tandem's 4,000 member sales team, add a services and support group and technology to help it move beyond PCs and PC servers.>
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I agree that this is a direct threat to IBM's business model. Compaq appears to want to mimic IBM's "total solutions" marketing strategy, but using Intel and Microsoft technology rather than (mostly) proprietary technology. It gives Compaq several advantages, especially lower cost of R&D and faster response to market changes. IMHO, not a real good strategy from a margin standpoint for Compaq, but certainly a new and formidable competitor for IBM. They were pretty much alone in the total systems and total support arena, now there may be another hardware manufacturer with the same service/implementation capabilities, a lower cost structure, and (IMHO) a more aggresive culture. All depends on Compaq's skills in integrating aquisitions, and I don't believe they have a lot of experience in that area (please correct me if I'm wrong). That is critical (I've been down that road, worked for companies that were good at it, and companies that were bad at it).
As you know, I believe IBM's valuation is a prime example of why EPS can be deceptive in valuation of a company. Flat to slightly up revenues (in a growing industry), lowering GM, cash flow used to buy back shares. It's a set up for an eventual turning point in the stock price. It is also the exact opposite of Intel, where increasing earnings are used to improve technology and infrastructure, which does not make the EPS great, but makes the future more predictable.
Sorry for the long note. My bottom line, it would be nice to see some apples to apples competition for IBM, for the first time ever.
John |
