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

To: hlpinout who wrote (89304)	1/27/2001 9:01:23 AM
From: hlpinout	Read Replies (1) \| Respond to of 97611

From TSC -- January 25, 2001, 4:02 PM PST Compaq Looks for Server Salvation Can the high-end server market beam the computer maker back to earnings heaven? By Tish Williams – TheStreet.com We want to love Michael Capellas. Compaq's leader is so exuberantly goofy. Tuesday, in between fourth-quarter earnings numbers — Compaq beat slashed estimates of 28 cents with 30 cents a share on $11.5 billion in revenue — he jokes about talking too much. He makes self-deprecating comments during the gaps in analysts' piercing questions. He tells it like it is, has been known to toss out the occasional swear word in public speeches and lacks the slickness that wavers between sleaze and untrustworthiness in so many CEOs. But he's still the CEO of Compaq, and as such, we have a little knot in our stomachs. Just as the computer maker was getting ready to be tagged a complete turnaround success, this whole economic slowdown unpleasantness hit. Capellas tightened Compaq's belt and squeezed out a 10 percent gain in revenue over last year's fourth quarter. But we're looking at eroding PC market share with furrowed brows and wondering whether that server-oriented salvation is really going to beam the Compaq campus up to earnings heaven. And at the end of the day, all we really want is to have a beer with Capellas. Instead, we are beer-less and unhappy, listening to another bummer conversation about Compaq finally capitalizing on its acquisition of Digital Equipment three years after the fact. For Eckhard's sake! We've been hearing about Compaq's migration to the high end and its ambitions in the IT services sector longer than we've been promising ourselves we'd pick up that old collegiate classics list and finally read the other chapters of the Aeneid that weren't on the course reading list. We're not prepared to go to hell and back right now. Capellas said some of the right things Tuesday, aside from lowering revenue guidance. He dropped Oracle (ORCL) 's name a few times, alongside the requisite Microsoft (MSFT) stroking, emphasizing the work Compaq is doing to entice Oracle's 9i e-business application customers to buy Compaq's ProLiant servers. (Yeah, yeah, and 30 percent of Compaq's servers ship with Windows 2000 Professional! Hot diggity Redmond!) And we're never fickle when it comes to inroads into the tasty storage sector. Compaq's storage software efforts (It has software efforts?) grew 130 percent year over year, as enterprise storage hardware sales jumped 50 percent year over year. It looks great, but we can't help but be reserved because when Capellas gets going on the high-end opportunity and says that magic word — "supercomputer" — our eyes glaze over with bad-trip flashbacks of Silicon Graphics (SGI) ' Cray (CRAY) division getting disemboweled by psychedelic stock market jaguars. Danger, carnage and pie-in-the-sky diversionary strategy ahead! Supercomputers? High-end server equals good. Supercomputer equals wrong message! Sorry. We panicked there. Let's go get some fresh air, shoot some hoops and talk about this later. We felt emotionally drained when Capellas ran through some highlights from Compaq's low-octane products. Compaq management is hitting its goal of 100,000 a month PocketPC-based iPaq handheld shipments, with 300,000 backlogged units. These Palm (PALM) rivals, as well as an audio device and the slimmed-down Web appliance iPaq desktop machines, command better profit margins than the stingy PC market, according to Capellas. Heck, he can sell the iPaq stuff direct to corporations, a better market than the consumer retail PC price bargainer. But this has nothing to do with high-powered servers, and as refreshing as Compaq's success might be, how long will it be able to hold onto better margins on the low end? When Capellas says he's the man who can offer a corporation high-end servers and the consulting services to make them work, we want to believe. He's a smart guy who understands who wants what bundled products. He says what he's hearing from "the heavy CIOs is that they are going to continue to invest in those key projects centered around their business strategy." He gives examples such as new Web servers, customer-billing systems and content management plans as reasons for companies with tightened IT budgets to keep spending with Compaq. They'll still buy servers. As for the meager 3 percent to 5 percent growth in PCs he expects next quarter, we're supposed to focus instead on the higher-margin, diversified wireless prospects, iPaq and PocketPC. As for that sign that Compaq's in the clear for good? Let's get that beer. Tish Williams' column takes at look at the people who make Silicon Valley tick.