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

To: Night Writer who wrote (92191)	7/18/2001 9:36:16 AM
From: Night Writer	Read Replies (1) \| Respond to of 97611

Compaq Says Future Profits Are in Information Technology Services Jul 18, 2001 (The Dallas Morning News - Knight Ridder/Tribune Business News via COMTEX) -- Compaq Computer Corp. formally recognized on Tuesday what it has known for many months: Future profitability depends on selling computer services, not just hardware. The Houston company has spent the last two years fixing old problems and stabilizing the business in light of declining demand for personal computers. Now, executives said, it is time to launch an initiative dubbed Computing on Demand, a model designed to provide a single source of answers to a confusing -- and expensive -- array of information technology problems. "Customers want IT to be delivered in new and more flexible ways," said Peter Blackmore, executive vice president of sales services. Or, as Mr. Blackmore later put it in an interview, companies want accountability when their IT systems go awry: "They want one throat to choke." Compaq's strategy is not new, just overdue, said analysts. IBM Corp. and Hewlett-Packard Co. are among those that have already incorporated high-margin services for commercial customers. In January, IBM announced what it called the future of corporate computing: delivering software, server time and data storage on a pay-as-used basis, "like power from a socket." Research by the brokerage Sanford C. Bernstein found that 75 percent of IBM's revenue growth since 1994 has come from services, contributing 23 percent of its operating profit. "They've seen what IBM has been able to do," said Stephen McClellan, who follows the computer services industry for Merrill Lynch. "I think it's a smart move [for Compaq] because hardware is becoming" low margin. "But I think it's going to be tough to graft services onto a hardware operation," he said. He also said there's a potential conflict in the eyes of customers because Compaq will want to sell as much of its hardware as possible along with the services. Compaq has responded to such criticism by saying that to push its hardware would only undermine its credibility as a services "partner." But Compaq can be expected to price its hardware competitively in any services sales call, analysts noted. Gartner Dataquest -- a market research firm in Stamford, Conn. -- has projected that IT services account for 40 percent of the $1.68 trillion high-technology sector. That figure could grow to 45 percent by 2004. With that kind of growth, competition will be keen. "It's an open playing field," said Jennifer Beck, an IT analyst with Gartner. She said Compaq is not too late to be a big player in the market. Compaq likens computing on demand to the way in which large industrial consumers buy their electricity or natural gas. Such customers can raise or lower their power requirements on demand, or a "pay-as-you-grow" basis. "Customers are saying, `Please provide a utility for our information infrastructure,'" said Joe Hogan, the executive in charge of rolling out Computing on Demand. Compaq's offering boils down to a customer's ability to tap -- whenever or wherever -- extra data storage capacity, server power or desktop help. Consulting -- professional and technical -- is also part of the mix. Compaq already has deployed the strategy in pieces for Blue Cross Blue Shield of Michigan and Acxiom Corp. and the Richardson (Texas) Independent School District. Chairman and chief executive Michael Capellas has set a goal of growing the company's services business by 40 percent a year. He wants to increase the company's services revenue as a percentage of the total to 30 percent in three years from 17 percent. Shares of Compaq closed up 42 cents at $15.82. By Leah Beth Ward To see more of The Dallas Morning News, or to subscribe to the newspaper, go to dallasnews.com (c) 2001, The Dallas Morning News. Distributed by Knight Ridder/Tribune Busines News.