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

To: Charles Tutt who wrote (93941)	12/3/2001 4:11:05 PM
From: Piotr Koziol	Respond to of 97611

Charles, RE: your qualifier 3)in North America - it's actually much stronger than that: "IDC research demonstrates that Compaq retained the #1 position worldwide, also in Latin America, Asia Pacific, Europe, the Middle East, and Africa, highlighted by a gain of five percentage points in the United Kingdom." Piotr

To: Charles Tutt who wrote (93941)	12/3/2001 8:30:07 PM
From: rudedog	Respond to of 97611

Charles - it is the only volume server segment where CPQ was NOT #1 and DELL made a lot of hay over it. The reason the CPQ spokesman was so specific is so there would be no question about spin, just the facts.

To: Charles Tutt who wrote (93941)	12/4/2001 6:28:37 AM
From: phileasfogg	Read Replies (4) \| Respond to of 97611

Charles, Allow me to second Piotr's answer to your qualifiers and provide you with some insider insight into Compaq. For your reference I worked 4 years (1997-2000) in the Industry Standard Server Group (ISSG) of Compaq. Mary McDowell, VP of Compaq ISSG is clearly using IDC to make a statement about her performance scorecard to squash (point for point) any possible claim made by DELLin the past over the Intel server market. Bottom line, beyond the leadership news ( market share records move up and down), what matters here for the CPQ stockholders is that ISSG is back to the old Compaq way. No more tricks, no more merger (DEC) market myopia, no more political number crunching / fudging, just plain numbers, i.e. statistical benchmarks one can rely upon. Allow me now to answer (point for point) your qualifiers while I share with you how an industry insider would read the IDC report. i) The unit qualifier. DELL has always given priority to unit shipments over the average unit price (AUP). Hence there is no chance for DELL to dismiss Compaq's Number one position and claim a server leadership in revenue terms. If Austin is to be crowned again as market leader it will be based on server units first. ii) Q3 2001 qualifier. McDowell has issued a staunch statement to DELL stressing that ISSG is now solely focused on quarterly performance and quarterly sequential growth. Bottom line, Compaq ISSG is back to basics. The period (1999-2001) where the Intel server group (ISSG) and the Alphaserver group (BCSG) converged towards one consolidated server offering (i.e. one mixed architecture) is over. For your reference, this confirms Compaq's strategic agreement with Intel to migrate the Alpha architecture to IPX (2001-2004). iii) ISSG servers qualifier. DELL does not compete with Compaq Alpha or other RISC/UNIX vendors. Btw, the industry standard server terminology would also include AMD server blades. Not that Compaq ISSG sell any but they could as Compaq's Access Group includes AMD powered PCs. FYI, ISSG looked at it in the midst of the Rocket Logix story. iv) the price qualifier. The under $25,000 segment represents the bulk of the industry standard server market, i.e 1 way, 2 way and 4 way servers. The only servers from Compaq ISSG which would not fit into this category are fully configured 8 way servers (priced up to $80,000). FYI, in 2000, Compaq held a 65% market share in this segment. I don't think DELL could set any leadership claim over this segment either. Here, McDowell reiterates that Compaq ISSG is fighting a price war in the server segment most sensitive to price reductions. v) IDC qualifier. For an alternative source of data see Gartner Dataquest (their quarterly report usually comes out 1-2 weeks later than IDC's). vi) Geography qualifier. Mind the regions highlighted in the report: Both NA and the UK were two regions where DELL was market leader earlier this year. Again, the message from McDowell could not be clearer, her scorecard tracks ISSG's business performance on a quarterly, geographical and price segment basis. No indication about profit margin though except for the vague price (premium) for quality statement. There lies the area where Wall Steet should query Michael Capellas in forthcoming earning conference calls as ISSG has been the bread butter and jam of Compaq. Bear in mind that for every server sold there is as much storage (DAS, NAS, SAN) to be added in the Purchase Order. Now this is a market with higher margins where Compaq outsells DELL 3 to 1. What's next? With 3Q01 in the bag, we are now into 4Q01 with the year end review in sight. Can DELL recover? The fourth quarter remains Consumer (Xmas) & SMB (budget leftovers/tax incentives) centric. Further, in view of the current climate in the US (recession) and Europe (Euro currency transition) it is unlikely that Fortune 500 corporations will boost their IT budgets over 4Q01 to buy new hardware. Rather expect more IT services contracts (IBM, EDS, CS, CPQ) a business area which DELL out sourced to Unisys and Wang to name a few. Where does that leave us? Questions to be answered by Capellas and McDowell I) Did Compaq stuff the channel to boost its market share? Check the channel inventory ( >4 weeks or not?) ii) Did Compaq buy market share? Check the decline in AUP and GPM of Compaq ISSG servers? (compare quarter to quarter, year over year and segment vs segment) iii) Wait for 1Q02 for the real acid test in the Compaq/DELL battle. It will be time to check 4Q01 (NA) and 1Q02 (the biggest quarter in the UK due their asynchronous financial year end) not to mention the merger with HP (major distraction for Compaq ISSG and undoubtedly a major opportunity for DELL). That's it for now. The Fogg