rudedog and thread, here is a good speech by Capellas, as
first discovered by ok1fool from the Motley Fool thread:
Worldwide September 13, 2000
COMPAQ PARTNERVISION
MR. CAPELLAS: Well, good morning. It's great to be here.
I would like to start off by welcoming everybody. It is absolutely great to have
you here, and to those of you I talked to last night, which is quite a few of you,
thanks for the feedback. I assure you I was listening, good, bad and ugly, and
you gave me some really good stuff to work on. And one thing I was very
encouraged about is, as I travel around the company, I really am just absolutely
amazed and feel very, very good about just the energy we have. And I think
that was pretty contagious last night. And so it's good to see everybody sort of
getting into the spirit of things. Clearly, from a year ago, we've got tremendous
momentum in the marketplace, and we're going to do everything we know how
to do to keep that going, both for the company, for our shareholders, for our
employees, most importantly for our customers, and of course for all of you,
our partners.
So, I'll talk a little bit today and give you an update on where we are and what
we're thinking. I'll talk about where I think the market is going, some of the
trends that are out there, and I'll talk about our commitment to our partners,
what we're going to do next, what we've done. We know we've still got some
things to do going forward. But, quite frankly, I really do feel like we're really
starting, again, to get our legs out from under us and continuing to really drive
some real great activities from partners. And there's no question this is a
foundation of our success. And the coming 12 months as I look forward, instead
of backward, it's going to be a foundation we are going to continue to work and
build our partner relationships because I really do believe we have the best
partner network in the industry.
So, a little bit about since we last met. One of the things that I always like to say
is, everything is now about those "e" words, it's about e-business, it's about
e-commerce, e-education, e-government. But there are two words that we're
really focusing on inside of Compaq, and those are the other two "e" words,
which are energy and enthusiasm. And we've really gone out, and you can see it
in our sales force, you can see it in our product people. You can see it in
everybody in the company. And we're going to continue to set that energy.
These are absolutely exciting times, and if you can't have fun at this, what can
you have fun doing? And I've been advised by HR not to answer that question
too deeply.
We've created our focused lines of business, and I'll talk a little bit about what
those are. I think most people know, but we've really gotten a lot of innovation,
we've gotten a lot of speed by taking in, deciding what target markets we're
going to be in, and having a lot of vertical integration in those markets, and
we're going to continue to do that. This is a business about focus, it's a business
about knowing market segmentation, and I think as we look out for the next 12
to 18 months, it's going to be really about delivering solutions to key market
segments that are going to be the real winners. We've got to go deep as well as
broad.
We've really accelerated innovation across all of our product sides. We're
starting now to measure our product life cycles on how fast it takes us to
develop new products, and in most cases we've cut that in half. We're really
coming out with the best array of products I've ever seen us come out with,
and this whole spirit about our foundation is that we have a great engineering
culture. We may not always invent the technology, but we're absolutely brilliant
at getting it to market, and you'll see us even pick up more our speed of getting
new products to market. New products will be our life's blood.
We've returned our commercial PC business to profitability, and this was a very
important objective we set. I think in Q2 a year ago we lost $220 million in the
business. In Q2 this year, we had a $65 million profit and if we're going to
continue to grow, it's important for us to have this foundation business
profitable. And I think that's a sign, more than anything else, about how we've
streamlined our business processes.
We've rebuilt our management team. We've just brought in a whole array of
very, very talented executives, and I'm very, very pleased with the team we
have in place. Most recently, we just brought in Doug Fox to head up strategy
and marketing, and Doug will bring a much stronger marketing focus, much
better air cover for everybody in the audience. You'll hear me talk about that
later. And, finally, we reduced cost, improved our distribution.
There's still work to go. I think from a cost reduction point of view, we've done
a very good job of getting our structural costs where they need to be. We'll
continue to put more energy into our improved efficiency of our overall
distribution.
So, what do we want to do with this foundation? We are going to continue to
redefine Internet access, and the whole Internet experience. We are clearly
number one in the world in personal computing, the personal computing is
absolutely moving towards Internet access devices. We're not worried about
that market shifting on us, and we want to stand up and lead the change of
what the next generation personal computer is going to be. We have a
foundation of having really set that in motion years ago, and we're going to
have a foundation of leading the next generation of Internet access.
We're going to continue to redefine the edge of the web. You're going to hear a
lot more about the edge of the web as I talk, but really what we're finding is this
movement away and to control of the web going to the edge, both on the
access side and on the server side, so we're going to continue to lead that
movement out there. We're going to continue to train our architects in
architecting on the edge of the web. This is natural space for us to be in. We've
always had a great domain in departmental serving, file and print, and as the
web moves more and more to processing on the edge of the web, it is a natural
space for us to have leadership.
We're going to continue to redefine high performance computing, and this is an
area where we have just absolutely rocked the market in the last couple of
months, last couple of quarters. Great wins, obviously a great customer success
story in solving the human genome, Celera, major win in the largest non-military
super computer with hits for supercomputing, and obviously the great military
win at Los Alamos. So lots of great work is going on in high performance
computing. This is a side that you'll see us continue to work on, moving into life
sciences, and continuing to use our edge in high performance computing.
And along the way we need to realize that our roots are about providing
solutions that set new targets in price performance, price performance will
matter, economics will matter and so we'll continue to drive price performance
as a foundation in each of those.
Quickly through the numbers, you can do all this great stuff, but you've got to
put numbers on the board. For second quarter, which now seems like ancient
history ?? you used to be as good as your last quarter, you're now as good as
your current quarter. Revenue was up about 8 percent, but that was in effect
partially due to the softness in the currency, 11 percent in constant currency.
We were pleased in four of our five geographical regions; we hit double digit
growth rates, with the exception being Europe, which was pretty soft for
everybody.
Gross margins were up three points, which was very important to us. We had
seen some period of margin erosion, and we start to see a bounce back here.
Operating expenses went down 17 percent. Now, hitting any one of those
targets is a good thing, but the real trick, as we know, is to get all of them going
in the same direction at the same time. And so getting all three of them clicking
in the right trend, that led to an $830 million improvement in operating profits,
and of course EPS went from a 10 cent loss to a 22 cent profit, certainly on the
right track.
Just a little bit about our business model. Pretty much similar to what we started
to roll out last year, but this year we now see this model starting to mature, and
we're starting to see it pay dividends in the marketplace. We really are in five
very different segments of the market, we view them as five different
segments, as we go to market differently. Obviously on the consumer side
we're continuing to push innovations. New design, our 3C series of products,
which are the most innovative, are from an industrial design point of view the
most appealing we've ever had. Obviously you saw last month's numbers, we're
starting to gain some very, very serious share, and so we've got the consumer
business. Headed by Mike Larson, the business is doing very well.
Commercial personal computing is all around gaining simplicity. Our iPAQ line of
products, which were built on legacy free, industry standard, the ability to have
sleeker designs, the ability to take it out of the box and have Internet access,
smaller footprints, very, very strongly and well supported. That product was the
fastest ramp to 100,000 units we've ever had. And so we continue to have
personal computing under Mike Winkler.
Industry standard, our code-name for ProLiant, obviously did very well, with last
quarter's 40 percent year on year growth. IDC numbers are just out, we see
that we gained four points of market share, which is absolutely extraordinary in
this space. It is the broadest lineup of products we've ever had, all the way
down from the 1P processor, to the new DL360, which is rack mounted, allows
us to feed the ASP market all the way up to the eight way data class machines.
And so this product line is continuing to grow, and will be a real player on the
edge of the web.
On storage, with massive movement into storage area networks, you saw us
sign an agreement with IBM to set new standards for the SAN. We'll continue to
push it. Obviously last quarter we didn't have the performance we wanted, but
this is a great array of products, and you'll see us put a lot of energy into driving
it.
On the business critical side, we're going to continue to push with Tandem
leading in a number of key markets on the vertical side. And I'm very happy to
report this year that Wildfire now has kicked in. Shipments are very strong.
We're ramping to production. And so here is a product that we think can also
help with the solutions side, really defining the high-end space. You'll hear more
about that from our partners as we go.
We did make a change a while back to put worldwide sales and services
together. This is so that in the field we have a consistent face, and more
importantly, in our go to market strategies we have one consistent model, and
one consistent voice on what our go to market model is going to be. That's
headed by Peter Blackmore, and Peter is just doing an outstanding job.
On the partner side, we continue to really focus on the partner activity. And over
the last year we've done a lot of work to streamline it, to gain focus, to
re-institute the value of our partners, and to get much better messaging. You'll
see us continue to work on that. I know we have more to do, but the difference
from a year ago is just amazing. And I really do feel that this is starting to pay.
And I think we've got nothing but momentum going on from this point forward
from where we are now.
And finally, in our own e-business infrastructure, we've made great strides in
building that under the leadership of Bob Napier, and we'll continue to drive that
going forward.
So what's our strategy? Well one, we're going to continue to build out the
Internet infrastructure, continue to take high performance servers, very heavy
back end, continue to drive that much more on a vertical orientation. We've got
vertical market focus on obviously financial services, doing very, very well.
Continue to push on telcos, there will be more coming on that. Continue to drive
in the very, very large, high-end e-commerce sets where we are starting to be
able have our fault tolerant systems really gain some recognition. And we'll
really drive it with our zero latency enterprise.
On the web and the appliance servers, again, this natural space. We will continue
to work price performance. We have absolutely the broadest range in the server
space. You may have seen the numbers, we now continue to be number one in
total web server ships, number one in total volume of servers, in terms of total
unit volume. But, we know we've got to continue to blend that into solutions.
We're not happy with just being able to say we're number one, we've got to be
able to put together really great solutions, and be able to drive higher customer
value. And again, great space for us to work with our partnerships. And finally,
to make storage area networks a reality.
On the Internet access side, there is no question we are getting into the world of
pervasive client computing. Devices will be everywhere. We'll talk a little bit more
about that, but I see absolutely no slow down in client devices that will be
shipped this year. It will be 130 million this year, and I think it will go up
substantially. They may be in a different form, but the client computing devices
will do nothing but continue to grow.
You'll see us continue to expand the Internet experience. This is the blending of
content services with the device. Obviously we've got some great relationships
with AOL and MSN. We'll continue to build those out, continue to add more and
more content to them. And then of course the trick is making it all come
together with the customer and our partners so that we have a great delivery
to the end customer.
We're starting to see a lot of success, we have 60,000 partners worldwide, the
largest network in the industry, that's responsible for $23 billion worth of
revenue. We continue to have high profile customer wins, I certainly won't go
through them, but a lot of known names up there, international. Our partner
network has global reach, and we'll continue to make it more global. And again,
we're going to pride ourselves on having the best partner network in the world.
It is a claim we have today. We have more work to make it go. We know that
we have some programs to iron out, we know we have some things to do. But,
very clearly, momentum is strong.
In terms of the Internet evolution, I think one of the things we're finding out,
and again it plays to our strength, is the e-business is all around evolution, it's
not around revolution. As we start to roll this out, you simply have to
acknowledge that companies and customers have installed bases. The trick to
the game is not saying I can change all things at all times, but being able to take,
being able to put a framework that allows companies to be able to take
e-business into their environment while still understanding there's a legacy that
has to be worked in the transition. And company after company after company,
in the end solutions that we're seeing, it's all about how you make the pieces fit
together.
Nobody in this market will do it all. There won't be an all blue shop, there won't
be an all red shop, though we'd like to see a little more red in those shops. But,
it will continue to be something that is evolutionary, the ability to do
interoperability. Scale will be absolutely explosive; there's no question that the
scale is going to continue to grow. These e-commerce applications are just
exploding. When you start capturing click streams, when you start doing high
volume transactions, when you start doing e-market applications, the scale gets
very, very large, but it's not about being able to put one box and scale very,
very high. It's about making the interoperability work. And what you'll see us
doing architecturally is more emphasis on middle-ware, more emphasis on
interoperability, and more emphasis on building out the edge, and building it back
to the back office.
The wireless revolution is just going to be extraordinary. It is already upon us.
The amazing thing about wireless is we continue to think about wireless from
the outside going in, from the end device going in. But, what's going to really be
the key is the wireless will put huge strain on the infrastructure. And so you need
to have the ability to think about these millions and millions of transactions
coming off of a wireless baseline, and not only what that does to the edge of
the web, but what it does to put continuing strain. There will be somewhere
between 850 million and 1 billion wireless Internet access devices in the market
in the next three or four years. And that means that the back end office and
applications they're hitting will be under tremendous strain.
Control then moves to the edge of the network. What do we mean by the edge
of the network? It means that when the device has gone out, and those will be
all kinds of different devices, the choice about what applications you use, what
content provider you use, who is going to be the carrier, will all move closer,
and closer to the customer. The content will be embedded and so continuing the
carrier and the content start to blend together.
Business models will continue to change no question about that. We're seeing
them, but again we're seeing some of those models where it's not the new age
or the new economy companies dominating, it's not the old age, old economy
going away, it's whoever can blend it together. And certainly the stock market is
telling us that economics do matter, and it's that blend that matters. And there
will be a fundamental shift in technology out three years. We simply cannot
support the wireless e-commerce based applications with the way we
traditionally build applications, and so there's going to be a shift in the way
people build out their architecture. That has to happen. We simply cannot roll
out this level of applications with the infrastructures most of us have in place.
This is just a chart that talks about the explosive growth, I think we all know
this. But, the real sweet spot is not just wireless alone, it's not the Internet
alone, it is really the blending point of where the wireless and the Internet come
together, and that is going to be dominant driver both in the front office and in
the back office.
So what does this mean? I don't think there's any question that wireless will
accelerate the growth of the Internet. It will happen in a couple of different
ways. One, it will obviously bring new users to the Internet. Two, it will continue
to have more and more transactions. The one thing we know as these early
Internet applications are rolling out is that an Internet-wireless application,
because of the nature of its use, pounds more transactions than a stationary or
a non-mobile user.
There will be this great new class of applications. And when this new class of
applications comes out a couple of things that are going to be embedded into it.
It assumes that mobility is given, the application knows where you are, and this
is a little bit scary. But, in fact, we'll start seeing new generations of applications
where mobility is built into them. This will put continued growing stress on the
infrastructure, and finally, the infrastructure scales out, not up. That means you
can't hit it all in a big back office engine. You have to be able to serve content,
to be able to do caching on the edge of the web, and so the fastest growing
segment of the market over the next three years will, in fact, be web servers.
So we talk about control, continuing to move. That also means that on the end
device control will continue to move more and more to the device. Let's talk a
little bit about what this means from an application point of view, and how
fundamental this shift is. I think if we sort of look at the back end, or the data
center side, there's no question a lot of applications will move server side, to be
able to use scale. And so our traditional ERP applications, obviously finance, and
as you talk to customers, there's not a great sense of urgency to replace these
applications. We just spent the last 3 or four years putting millions, and millions
of dollars, even for small businesses into this back end office. So people don't
want to swap out their ERP and their finance applications. We've just put those
in.
Increasingly, though, the operational data store, how you bring this data
together to be able to hit, be able to have more and more use of that
operational data, and of course, CRM in terms of the customer relations will
continue to grow. And that will continue to move more and more into the back
office and go to the server side applications. But, you can't hit this. We've
proven the scale. It's too large even for small business to hit continuously a
single back office engine.
So there's a new class of applications that are starting to come on the network
set. We're going to continue to cache, very simply, you have a device, it tries to
hit it, you go to a caching engine, the caching engine does all the things it knows
how to do, it sends out your logo, it does the local content rendering, it does all
the transactions, and handles the front end buffer before it hits the back end.
Authentication will happen on the edge of the web. It's purely practical about
how you have to be able to authenticate on the edge; you can't go back and
just be able to have hit every transaction just to say this is an authorized user.
We'll continue to do content rendering on the edge of the web. The profile will be
gathered on the edge of the web. And of course, we'll move into the next
generation of streaming, whether that's audio or video, and we'll continue to
have this very, very rich customer interface. And again, to put that kind of
capacity in terms of delivery on the edge, it's got to go out there. And so this
new category of applications on the edge of the web becomes a hugely fast
growing market. We intend to partner deeply with the leading application
companies on the edge of the web. You'll see us make a number of
announcements where we have very strong ISP relationships with these, and
we'll continue to do interoperability with the back office.
On the edge of the web, mobile becomes just absolutely explosive, and we'll
lead again with a whole series of mobile devices. Provisioning, how you do bill
presentment will continue to play on the edge of the web. Since the web knows
where you're at, this whole generation of creating coupons and moving the
ability to influence customers based on their profiles, and obviously we'll have
the ability through GPS to track it.
Let me take a minute and sort of live up to my reputation as a geek. I actually
carry each of these devices. I didn't stage this. I took them out of my briefcase.
An example of it, wireless handheld email. A very simple device if all you want to
do is capture email, a simple device, check your email continuously. That has its
blessings and its curses. But, a classic example of a next generation Internet
access device, you simply slip it in your back pocket, you can integrate it with
your Microsoft Office Suite, be able to do that.
This is the iPAQ Pocket PC. This is one of good news and bad news. When we
first introduced this product to the market we thought it would sell fairly well,
however actual demand is running at two to three times what we forecasted.
We are now trying to gear capacity up to 100,000 units a month. I know
there's a lot of frustration, you can't get them. There are only two employees in
the whole company who have one, which I, of course, am one. Mine was first,
by the way. And so what you see here is a device that not only is an Internet
access device, I can browse the web wirelessly, if I wanted to. It also has an
absolutely great sound system inside of it, and so you can actually use it for a
sound device. You simply slip it into the sleeve, a cute trick here, and if you
manage to keep your antenna it becomes an Internet access device, totally
wireless. Now, this is not just a handheld device, this is a full computer running
Windows CE, all your applications, another example of the edge of the web.
Another example of Internet access devices, this is obviously an MP3 player. The
trick to this is you attach it to your personal computer, one button downloads
music to it off of a registered site, with royalties paid. I do have all the CDs.
We're not making news up here. But, this is another example of what the
Internet access becomes. And again, what's fascinating about these devices, a
little flip, put cards in, but this is the next generation. When you think about
talking about what all this means, this is an example of the edge of the web.
This is an example of these new devices and for every one of those devices I
carry around, you're creating a whole next generation wave of transactions and
volume of transactions. And you're going to see lots more of that stuff coming.
So what happens in this space? Well, it all becomes about solutions. At the
highest end you'll see us continue to push the zero latency enterprise, that's our
highest speed engines, that tie all this together, to handle very, very large
volumes of data. We'll continue to work with our partners on customer profiling.
Again, customer profiling is the foundation that allows you to tie into your other
applications. This is not about replacing everything you have. Nobody believes
that's going to be in the market for the next couple of years. It's about putting
profiling on the edge. You'll continue to see us work with the new generation
m-commerce, all around developing different kind of go to market strategies,
around new market makers. And you'll finally see us move into wireless in a big
way. You saw an announcement this morning, you'll see more coming, about
coming into location based services.
So what happens in this environment? One, server volume is going to grow like
crazy. The high end right now is stretched to capacity. A lot of the larger sites
are having problems keeping up with it. But, the midrange for volume, for web
servers, to support this movement to the edge will continue to grow. The
demand for network storage is going to absolutely explode. We know that
e-commerce applications just drive storage nuts. So we'll continue to play in the
storage in a big way.
There will be a new wave of applications and solutions that emerge. But, they're
on the edge of the web, and they integrate with our traditional back office. The
opportunities for service will just continue to grow, and I encourage everyone to
really look into the opportunity we have here. The amazing thing about this
generation is that we are not making things any easier. These are complex
enterprises, they are complex even in the smallest of businesses, and how you
have to stitch all this stuff together.
Commercial PC users will continue to see, and they'll want to see simplicity,
ease of use, better price points, and so we'll continue to work on the devices
that drive that. I see no slow down in consumer spending at all. And the gap is
closed by wireless. You'll have the device in the office, you'll have the device at
home, and you'll have wireless to bridge in the middle.
So our objectives. One, we want to continue to drive with the industry leading
both products, services and solutions. You can see, we've got a lot of great new
products coming out. We've got a lot of solution sets coming through. We've
developing tighter relationships, and the first key is to make sure that we have a
great solution set for you to sell.
We'll continue to support this by web-enabled partnerships. We will use the web
in a big way to make your lives easier, to make us easy to do business with,
and, of course, the whole key is then to drive growth and profitability, which
only comes from customer satisfaction. We will continue to put a great amount
of emphasis on making sure we have high customer satisfaction across the
board.
We did listen, too. You had lots of things to tell us. One thing I love about this
group is that you are not particularly timid. I didn't have any shortage of people
coming up to me last night offering me advice, all of which I gleefully accepted.
But very clearly we've got to be more global. We're working on this in a big
way. We know we've got to service our global accounts in a more seamless
way. We know we've had some issues about having very, very different policies
internationally. We're starting to close this down. We know we've got to make it
easier for you to do business with us, and we're going to continue to work on
that, and that is going to be a major, major focus point. And we've got to
continue to really clarify where our partners sit. There is no question that things
are different this year than last year. We've got to continue to make this work.
And the partner relationships become the key to our success.
So, our commitment, one is, we've got to drive more profitable business. This
only makes sense if we help you make money. And we've got to continue to
continue to keep that in the focus. We've got to radically |
