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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Elwood P. Dowd who wrote (64607)	7/4/1999 8:58:00 AM
From: isdsms	Respond to of 97611

Compaq: Still a giant, but can it keep up? The computer company's profits are down and its stock is plummeting. Many warn it may be in danger. By Jeff Franks REUTERS HOUSTON - The name Compaq Computer Corp. once conjured up images of a well-managed company with a Midas touch, but its golden reputation has been so tarnished that some are beginning to wonder about its future. For the moment, the questions are less about whether Compaq will survive and more about how the computer giant can reshape itself as a nimble competitor in a fast-changing industry. While Compaq is still the world's largest personal-computer maker, there are those who doubt the Houston company will make it in its current form unless it gathers itself in a relatively short time. "I think they've got about 24 months to put their bets down - and if they don't get them down on the right numbers in that period, I think the company is probably going to be a candidate for a sellout," said analyst Ernest Widmann of Widmann, Siff & Co. Since the first quarter of 1998, Compaq has been struggling to find its way through a maze of excess inventory and the controversial $8.4 billion acquisition of Digital Equipment Corp. The problems cut profits, sent the stock plummeting, and in April led to the dismissal of chief executive officer Eckhard Pfeiffer. While many welcomed a change at the top, analysts said it did not solve Compaq's key problem - a production and distribution system that has been left in the dust by competitors such as Dell Computer Corp. and Gateway Inc. Since Pfeiffer's departure, Compaq chairman Ben Rosen has led a management team that is simultaneously looking for a new chief executive and trying to reshape the company. So far, no new leader has been named and, analysts say, the company's strategy is unclear. Compaq has yet to let the investment world know how it will address the dilemma of competing against the direct-sales model used by Dell and Gateway while at the same time holding on to the resellers who have historically been Compaq's primary outlet. The company has said the Internet is a key part of its future, but on Tuesday it sold a majority stake in its AltaVista search engine, which came with Digital, to CMGI Inc. for $2.3 billion in stock and debt. "Please don't believe that we're withdrawing from the Internet," Rosen said in a conference call with analysts and reporters. "This is part of a strategy to enhance our position." The move got lukewarm applause from analysts: They wondered whether Compaq was selling off a potential moneymaker, but also said the sale would enable management to focus on getting its computer business in order. "We believe it makes sense for Compaq to hand off its AltaVista division to a company such as CMGI that is better suited to handle an Internet business," Steve Milunovich of Merrill Lynch said. But, he added: "We continue to be neutral on shares of Compaq, given the low visibility regarding management and strategy." Compaq stock gained $1.06 to $23.375 on the New York Stock Exchange Tuesday after the AltaVista deal was announced, but remains well below its 52-week high of $51.25. It closed on Friday at $23.25. Analyst William Conroy of Sanders Morris Maundy said Compaq's strategic decisions were complicated by changes taking place in the computer industry, which he believes is becoming dominated less by hardware and more by value-added services. "It's got its own world [of issues] to deal with, but the world in which it plays is also shifting. The sands are moving beneath it," he said. Part of that change is the simple fact that computer prices are falling and margins are harder to maintain, Widmann said. "If you're not right on the money with your marketing and your technological position, you're going to get squeezed. And these guys [at Compaq] are one of those being squeezed out right now," he said.